Heidelberg Materials AG (HEI) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Heidelberg Materials' Third Quarter 2023 Results. [Operator Instructions] I would now like to turn the conference over to Christoph Beumelburg. Please go ahead.

Thank you, operator. Good morning, and everyone, and -- good morning, everyone. Welcome to our analyst and investor call on the results of the third quarter. As you know, on the 19th of October, we had already pre-released our headline numbers. As you have seen with the release today, these numbers have not changed. So we will use the call today to shed some further color on the regional development, progress we made on financials and sustainability as well as remind you on our capital allocation policy. Dominik and René will go through some prepared remarks before we start with the Q&A. So over to you, Dominik.

Thanks a lot. And also a warm welcome from my side and René, to this Q3 call. Thanks for joining. As Chris said, we have basically released the figures early as they were, from our perspective, very strong and deviating positively from the consensus. That's why we have gone ad-hoc. You see that revenues are up 2%. EBITDA is up 25%. RCO, even up 33%. What I think is a little bit new versus the ad-hoc is the margin development, and we will take you through the margin development for the group and also for the region. Free cash flow, very good, around EUR 2 billion, René will go through the details. Our share buyback program has been done on Tuesday this week. So we delivered exactly what we promised, 2.5 years EUR 1 billion in 3 tranches, first 2 tranches have been canceled. We make -- continue to make very good progress, not only on CO2 reduction but also on the CCUS and other CO2 reducing projects. So there, I think the pipeline is really full, and we get good traction with those projects. And then last but not least, we have upgraded our guidance in the ad-hoc. So it's now EUR 2.85 billion to EUR 3 billion and the ROIC, we are even taking up now. That's a change to the ad-hoc and our update to the ad-hoc where we said it's going to be around 9%, so now we go clearly above 9%. And the same is true for leverage. We said it's going to be between 1.5x and 2x. And now we guide that it's going to be below 1.5x. I think then the next page, on Page 4, I only would like to go -- sorry, 3 -- no, 4 -- 4 -- 3, sorry. 3, I would only go to the operating margin. You will see the other figures, you know. But the operating margin you see jumps up to 24.8% now. That's not only above last year's Q3, but also above the very good Q3 in 2021. And I'll go through the next page where you see the same development for the first 9 months. And you see there, we are still a little bit behind the Q1 -- the Q3 or the 9 months 2021, and that indicates that the margin development gets even better traction as we go along during the year. That's important. The positive margin development has clearly accelerated during the 9 months, more towards the end. And from our perspective, this looks very promising to continue. If you go to the next page, 5, you see the drivers of the EUR 270 million improvement on EBIT. So clearly above EUR 1 billion for the Q3. That's driven by volume decline, mainly coming from residential, partially commercial, outbalanced by infrastructure and some industrial projects but carried very much by positive price over cost, and that is clearly positive in all areas we operate, important point. So there is not one that's moving to the ceiling and the others all are lagging behind; it really carries all 5 cylinders and that's moving in the right direction. That's also true for Page 6. If you go to the full year, pretty similar picture, EUR 600 million up to almost EUR 2.3 billion now for the first 9 months of the year. What you may be more interested about because that's going beyond, to Chris' point, the ad-hoc discussion, is the area perspective, so let's dive into North America. We've discussed on these calls for the last 12 to 18 months, a little bit our performance in North America. And I have to say Q3, we are not quite satisfied. We are never -- we're never fully satisfied, but we are quite satisfied with what we see from North America, not only in terms of financial figures, but also in terms of organic investments because K4, Mitchell, I was there again a couple of weeks back, is really ramping up. We haven't seen the full results at all this year, but we are now getting to the targeted operational performance already 6 months after plant starts. So that, from our perspective, it's a very good development. We've also invested in Port Canaveral, as you know and also that one gets significant traction. And then it's all about organic investment and M&A. You remember our SEFA acquisition. Also, that one gets traction that clearly sits above the original assumptions of the business case. So in that respect, I think the good news is that all of these will add fully to the EBITDA and RCO next year. All of this say more towards the second half of this year. So in that respect, that should set all the sales for the North American business for next year. You see the margin development in North America clearly jumping ahead of '21 and also '22, now with almost 24%. And again, none of the 3 investments that I showed you is yet in that margin development fully. So in that respect, I think we stay very optimistic for our business in North America. If you go to Western and Southern Europe, next, Page 8, strong performance on an absolute terms of RCO, more than EUR 100 million up from last year in the quarter alone. And look at the margin jump there. From 10.7% to 17.2%. It's never perfect, but 17% is better than 10%. So we have a way to go, but I think this is really a very strong recovery in margins for a very important area for us. NEECA, next Page 9, basically performing on a very high level. Again, EUR 230 million result, margin at a strong 23.5%. Overall, very strong development from NEECA again. So ticking the box. They are continuing to perform on very high levels. APAC was a little bit difficult through corona. You know that, but we are more and more optimistic for APAC now. And you see this also reflected in our Q3 performance. China remains difficult, but the other countries are coming back. Australia, a difficult market position, but we have some internal retrenching that gives us good hopes that we will continue to perform very well in Australia and even maybe a little bit better down the road for next year. Same is true for Indonesia here. You saw that Indocement has done another very important strategic acquisition in Central Java. That is obviously not yet in the figure in Q3, but most probably we'll close the transaction now in the next couple of weeks. And that would then mean that it will go fully into our figures next year because that asset will be fully consolidated and will be a strong contribution synergy potential for Indonesia, so we see clear improvement there. India throughout the quarter, we made a management change in India. We see clear traction there. Volume recovery is moving along very well. So in that respect, also India looks better. Thailand performing on a high level, even improving. Malaysia is coming back up after difficult years. Bangladesh, holding up on a good level. So overall, we have high hopes for APAC going forward. Africa-IM (sic) [ Africa-EM ] is performing on a very stable level, around the EUR 100 million mark for the Q3. Margins also coming up again. Volumes are in a couple of countries under pressure, Ghana, Tanzania, partially. Morrocco used to be a little bit under pressure, but I think we see country after country stabilizing, not only in volumes but also on currencies. You know that we had some currency impact in Ghana and Egypt, and that is at least stabilizing on the lower level. So in that respect, I think we are still fighting for the closure of the transaction in Tanzania. We are hopeful that this can be done by the end of this year. And this then would also make a significant additional contribution of organic growth for the African business for 2024. With that, René, I would turn over to you on the financial side.

Thanks, Dominik. Hello, everyone, from my side. So if you look at our last 12-months free cash flow for September, that reached around EUR 2 billion, which is a nice improvement from the last 2 years. And our cash conversion now reached a rate of approximately 50%, which is, I guess, a good number for us. Net CapEx below will be below EUR 1.1 billion. We are very disciplined here as we always promised, and even will hopefully be below the guidance we've given as the EUR 1.1 million. So that is also contributing to a good cash flow. Then our net debt has reduced by EUR 600 billion (sic) [ EUR 0.6 billion ], bringing the leverage now at 0.35x down, and we are now again on a very, very comfortable level. And as Dominik alluded to on Tuesday, the share buyback program was finished, EUR 1 billion share. The shares were bought back. And we cancelled already earlier the second tranche of the share buyback. If you go to the next slide you see on the Slide 13, just our cash flow and net debt leverage on the chart. You see on the left an improvement of EUR 1.3 billion versus last year September, so there, mind, that's not year-to-date; it's last 12 months rolling number. Yes? So then where does it come from? It's clearly RCOBD, plus this CapEx, plus lower working capital outflow, yes, what we as well said. Net debt now at EUR 5.9 billion. EUR 600 million below last year, and the leverage now at 1.39x, even slightly below our target corridor. If we go to the next slide, Slide 14, I guess we wanted to demonstrate you what we have promised during our 2022 Capital Markets Day and what we delivered against. And if you look at the left chart or left bar, you see the usage of our free cash flow from 2018 to 2021: 55% debt payback; 26% shareholder return; and 19% smaller bolt-ons. In the middle, that is where the graph shows you what we have promised. You see lower debt payback because our balance sheet was strong already last year; an increased shareholder return, an increased M&A. And on the right, you see what we have really done from September '21 to September '23. We clearly reduced the debt payback; as promised, we doubled the shareholder return to 43%; and then we increased as well the bolt-on and growth CapEx and this is exactly what we expect in 2022 and I think we're very comfortable. We can say we have delivered a very good shareholder return the last 2 years.

Yes. And if you then go to the next page, I think that's a little bit one level down in the execution. I think yes, René was rightly saying, for us, it's crucial to deliver what we promise. And we are a capital market, very capital market-oriented company. And that's why holding the line and making sure that we get to the point that we share with you and our target we also hit. And I think what's interesting here on Page 15, if you take it a little bit from a different angle, and we talked a little bit about portfolio optimization, and many have asked well, you know, what does that mean? Very simple for me, we want to simplify and grow. That's very easy. And we basically divested about EUR 2.5 billion in the case of simplification. Not only the West Coast in the U.S., but the Spanish part of the Spanish business, a lot of other smaller countries and that all added up to EUR 2.5 billion. And we added in a growth path EUR 1.5 billion in small and midsized bolt-on acquisitions that we shared with you. A couple of them paid good returns. And obviously, if you divest EUR 2.5 billion and give EUR 1 billion back to the shareholders and grow the company by EUR 1.5 billion, and then move the results like we did in the last 3 years, I would say, wow, not so bad. I think that goes in the right direction. And we have a clearly defined M&A framework, how we want to grow the company. We have strict CapEx guidelines for internal PPE CapEx. Also, they need to go -- they go under financial scrutiny and then the same is true for M&A. It needs to be a good balance between strategic rationale and financial rationale. We don't go -- this is a strategically very important acquisition. We don't care about the financials. Doesn't happen. It's -- the other way around also doesn't happen. So it always needs to be both, and we want to stay focused on our core markets, improve the market positions that -- Indonesia, for example, is now a good example, that clearly a fantastic improvement of the market position of Indocement. We have rebalancing the earnings towards the more profitable businesses. I think that's also clear. And we want to make sure that we further reduce the complexity also of acquisitions by speaking very closely to our existing product portfolio and asset portfolio because that also simplifies things over time and doesn't complicate them. Complexity at costs and in transparency, and that's not what we want. And it also drives on the financial side. Obviously, there is synergy potential. Each of the acquisitions we do, it's very much looked for when it comes to synergies. In some cases, we then try to refinance also either by sustainability linked bonds if we tap into the bond market or through disposal proceeds like you see on the left side. That's very clear. And then we obviously have a clear strict financial criteria on the M&A side. Both legs need to be in line with the communicated financial target that we shared with you in our Capital Market Day. There obviously also need to be in line, like René said, with our shareholder return policy and the numbers speak for themselves. They are absolutely in line with our shareholder return policy. And with that, we want to create value not only for our shareholders but also for our customers, employees and obviously, also our sustainability-linked society. So in that respect, I think the target remains good shareholder return with very balanced, disciplined and profitable growth. The combination of the 2 does the trick. And I think the track record is on our side. We strongly believe to -- let me make that remark. It's not yet reflected in the share price. That's -- we say that very openly. We don't think that the great record of the last 2 or 3 years has been reflected enough in the share price. It's moving in the right direction, but it's clearly below our expectations, and we'll continue to push to see that great job we do being fully reflected in the share price. Okay. And then last but not least, sustainability highlights. I think you have seen most of these in separate communications. I think we continue to roll along very well in our CO2 emission reduction. We'll give you the full figures for the full year. We have the big project in Bulgaria on the ANRAV project, first one in Eastern Europe. First full-chain one. That will also cover transport and obviously, storage. So in that respect, a good project. Very important for us GeZero. That's the first one in Germany. Heavily funded by the EU Innovation Fund, but obviously, also a very strategically and financially important project for us here in Germany to show that decarbonization can be done -- full decarbonization can be done in our home country. And that will have all the energy of the German management team and the group to make this project a significant success for the group. We have had interesting developments on 3D. I think now we have got the first social housing project. That got a lot of attention recently in one of the states in Germany. We continue to roll out these 3D efforts in other parts of the world. So in that respect, bear with us. Good reduction in CO2 footprint, 55% in this 1 pilot project, so really moving in the right direction. We've got next to Ghana, a second calcined clay project now in Bussac in France launched that will also reduce the CO2 footprint by 20%. And we've got another very exciting CIRCO BETON project that will close the loop in a 3- to 5-year project in France. Also very interesting for us with a certain technology we'll apply there that is very promising from our perspective. And then on the guidance, we have, in our ad-hoc, raised the guidance to EUR 2.85 billion to EUR 3 billion. And now we are a couple of weeks further down the road, I think from our perspective, we are comfortable to say our clear fighting target is to get as close to EUR 3 billion as even possible. And from today's perspective, we'll clearly be in the upper end of that range than in the lower end to say that. CapEx will stay around EUR 1.1 billion. The ROIC will be clearly above 9%. So you see also here, we're becoming more confident and more bullish for the remainder of the year. And the leverage will stay clearly below 1.5x, so I think in that respect, we are moving in the right direction. That's it from us, Ozan and Chris and Katarina. So let's go with your questions.

Let's start the Q&A process.

[Operator Instructions]

Yes. Thank you, operator. I see many, many questioners on the line. [Operator Instructions] First question comes from Elodie Rall from JPMorgan.

So I have two then. First of all, could you give us a bit of indication of trends in October, in particular, in Europe and in the U.S. You've seen some volume declines. You've talked about residential weakness. So are you seeing any signs of stabilization at this stage? Or is it getting worse? So that's my first question. And for my second question, I will go with buybacks. So you have finished your program. You've told -- you've explained to us again what you capital allocation strategy is, but you do have a very low leverage now. So what refrains you to do another buyback at this stage?

Okay. Elodie, thanks a lot. I'll give it a try, and then René can jump in. Quick answer to the trend in October, no change. So it's clearly not getting worse. That's not what we see. I think we have a couple of more working days in October. I think that's interesting. From our perspective, that was the working assumption; is there a decline, a worsening in the trend? Clearly not what we see; rather, a stabilization in some part, even a little bit picking up. So from our perspective, I think that's it for the trend in October. And on the buyback, I think René has shown you the picture that we have put into the presentation. Clearly, our leverage is coming down. We are sitting below the corridor of 1.5 to 2x. And that also indicates that there is room for both growth and M&A, but also for shareholder return. And one part of the shareholder return. There are 2 parts that René mentioned on his slide. One is progressive dividends. We are coming up to our dividend decision in Q1 next year. And then the same is true for buybacks. We have the flexibility to do buybacks. We have also the balance sheet to do it, but it needs to be a good combination of those 2 things. And now let us roll along in this year. Let's fully do the share buyback and then we'll decide about shareholder return. Clear commitment from our side that we continue the route of strong shareholder returns. There is no change to that policy.

The next question comes from Paul Roger from BNP Paribas.

So it's interesting. So in your prepared remarks, you seemed to indicate a frustration with the share price. And I guess one of the things that doesn't seem to be fully reflected is the value of your U.S. platform. I just wondered if there's anything sort of strategic that's sort of on your mind that you might consider to address that issue? And then secondly, what magnitude of price increases have you announced to Europe next year, if any, if you're able to say at this stage?

Okay, Paul. Thanks a lot. Share price, from our perspective, the remark comes from a clear we are competitive guys. And if you compare it to others in the industry, I think we have the highest upside in terms of performance being reflected in the share price. That's where I was coming from. I think as simple as that, Paul. And the question is obviously, how you get there? And I think it's -- we continue to believe that we -- if we continue to deliver on what we have promised, if we continue to deliver what René has indicated in terms of great balance of growing the company, increasing profits, staying very focused on free cash flow generation, on cash conversion rate, we have all the freedom in the world to continue with a small, midsize and larger M&A on the one hand, and also shareholder returns in the combination of dividends and share buybacks. So I think that is completely intact. And with your question to the U.S. platform, I think I agree with you, our U.S. position is not enough reflected at all in our group share price performance that I would fully agree. And then the question is, how can you continue to do that and make that transparent? That's why we continue to have a very strong pipeline of organic projects and M&A projects in the U.S. that we continue to diligently execute, grow our numb exposure overall within the portfolio. As we always say, again, guys, always what we said after the divestment of the West Coast, we said, we are going to mainly recycle that proceeds in North America over time. So there should not be any surprise that we continue to grow our North American footprint. And we continue to do portfolio management in other parts of the world. You saw that we are selling out of smaller positions, notably in Africa, where we have a lot of smaller positions over the years and we have started to divest a couple of them. We'll continue to do so to focus on less countries, but in those countries have the #1 or #2 position. And the same is true for North America. So in that respect, whether you -- the background of your question, Paul, was whether we go for a listing in the U.S. tomorrow. That is not yet our prime target.

I'm sorry. There was a pricing question in Europe as well.

Yes. Yes, pricing in Europe. You know that I do not comment out of -- on specific price increases. I ask for your understanding. This is a very competition-sensitive topic. So I will not comment specifically around certain markets. The one thing is clear. We continue to advance our pricing also in Europe. Next year, that's true for WSE and NEECA because there are, from our perspective, 2 main reasons for that. First, as we said -- or 3 main reasons. First of all, fixed costs are coming up. There is underlying inflation. And I think that we do all the fixed cost management that we can, but we cannot completely manage that away. So I think the costs of doing business are going up. Secondly, varietal costs, yes, energy costs are coming down, but they are by far not yet on the level of precrisis level. CO2 costs come up. CO2 certificates, although we are long, CO2 certificates are up and I think that warrants that we need to continue to develop our pricing also in Europe.

Next question comes from Cedar Ekblom from Morgan Stanley.

Two questions from me. The first question, just back on M&A. Is there an optimal size of deals that you target? Most of the deals you've done have been bolt-on. So I'd just like to understand how you think about balance sheet capacity and your ambition to be 1.5 to 2x net debt to EBITDA. If you went above that level of gearing, would that take a deal off the table? And then just a second question on your price over cost development. Very impressive in the third quarter. Could you give us a little bit of color on the price over variable cost contribution and maybe a bit of detail on any fixed-cost reductions that you also might have done, which contributed to the margin improvement?

Yes. Cedar, maybe I'll take the first one and a small hint to the second one, and then I'll let René answer the second one. On M&A, Cedar, you are long enough in the business, you know we can always dream on optimal sizes, but it's not -- unfortunately, we can't paint the world exactly how we want it. So the way we look at this is we look at every deal that's out there. I think because we know -- we get to know a lot about the industry. We get to know a lot about the specific market, about the current movements in the market. But then we apply our very strict M&A criteria. So in that respect, huge pipeline at the beginning and then we boil it down, boil it down, boil it down. And we also said, we have small, midsized and larger deals on the table. The only thing we excluded is that we are not going to do a multibillion and at the same time multi-country deal because we don't want the complexity that would come with that and that also doesn't warrant that you pay too much absolute money in order to improve the business. But outside of that, we look at every size of the deal. But again, the size alone doesn't -- and we are not -- we're not chasing the -- or let's put it the other way around, it's not like the bigger the elephant, the nicer it is for us. No. You know that we have changed the strategy in that respect. We are -- look at North American performance. It's a great combination of organic investment and smaller and midsized bolt-on acquisitions and here comes the financial return. So I think in that respect, if -- the bigger deal gets, the more scrutiny we put on them because it also has an impact on the overall financials of the group. And we, again continue to deliver what we have promised to all of you. And that's why there is not an optimal size of M&A deals, but there's a rigid framework in place and that framework gets diligently applied. On the price over cost, just one remark. On the fixed costs, yes, we are seeing some good traction in reducing our fixed costs throughout the year. They have been growing like everywhere else significantly, but we are doing a very good job in containing them, and if we get clearly good traction as we go along, and that is certainly one of the contributors to the good margin development. That's my remark. And then, René, maybe…

Yes, just to your question, the price over variable cost is EUR 508 million. And then you can do the math what the other one is. And as Dominik said, there is still high inflation year-over-year, but you see that it's very much under control, I would have said.

That EUR 508 million is a Q3 number, just to be clear?

Correct. This is what you asked or not?

Yes. Yes, yes, exactly. Appreciate it.

Next is Harry Goad from Berenberg.

Yes. Just coming back on the cost piece again, I mean to the extent you can. Can you give us an indication of when we think about the total cash cost that you'll be exiting this year at compared to probably what you came into the year at to give us a feel for how that run rate has contracted. And then separately, a second question. Can you talk about the U.S. market into next year? We hear a lot about the strength of the manufacturing sector, the pickup in infrastructure spending, but then clearly, it's still tough for the housing market. I mean is it sensible to think that the U.S. market can deliver overall volume growth in '24?

Okay. Harry, let me maybe take the second one and then René will take the first one on the cash cost. Harry, very simply, we are positive for next year in the U.S. I think that's the general remark. How it exactly plays out on the volume side, difficult to say, and that's also very different market by market. But overall, I think there is not a huge volume increase and not a huge volume drop from our perspective. That's our early expectation for the U.S. It varies -- business line and application driven. So residential, steep drop, obviously, during 2023. And the recovery in '24, you see a little bit here and there small markets where you see already a recovery. It very much also depends on how interest rate development and everything. So let's wait and see how the residential plays out. But keep in mind, on the infrastructure side, as many of you have noted, we have not yet seen the full volume and the full power of the design program. So there, we are very optimistic for -- not only for '24 but also for '25. We see these volumes more and more coming in and then outbalancing the decline in residential. I think the industrial building, we see large industrial projects also going into '24. So there, we are optimistic. So in the end, if residential would turn the tide, that would then go more on the very positive side. If residential stay subdued, then you should not expect huge improvements overall on the volume side for next year. But overall, on the pricing, before you asked that question anyway, for us, it's still a high-inflation country in North America, and that means that also [ in advance ], it means for me, at least for our company, we will continue to advance pricing in the U.S. and Canada in 2024 in all business lines.

Harry, with your first question, to be honest, I'm not really sure what you are after.

It was -- I guess, it was to get a feel. I mean, I guess, when you came into the year, the business was still carrying very high levels of energy cost inflation as well as wage inflation. As you get to the end of the year, you've still got that fixed cost inflation, but the energy piece has probably turned negative. So it's to get a feel for the change in number over the course of the year.

Okay. Okay. Understood. Okay. So from a fixed cost perspective, we will be around maybe 4% to 5% up year-over-year, which is the salaries and then maintenance and everything. So that's, I guess, clear. And then if you go to the energy piece, into '21, we were EUR 2 billion. Into '22, we were at EUR 3.2 billion. And this year, we will be clearly below. So that means around maybe EUR 2.8 billion to EUR 2.9 billion on energy.

Next question comes from Gregor Kuglitsch from UBS.

So I've got two questions. I mean, sorry to come back on sort of the capital allocation point and maybe sort of tying it back into your comment around your own stock price. And I guess it's sort of a common/a question, but obviously, your stock is on, I don't know, 5x or below, something like that, EBITDA. You're clearly frustrated by that, hence, why you mentioned it. So I guess I want to understand how you, therefore, think about buying assets that, let's say, are substantially at a higher multiple than that because, obviously, the opportunity cost would be to buy your own shares. So that's question one. And then question two is to come back to the guidance and to your comments around hitting the top end potentially of being in the upper half. I guess, mathematically, it implies sort of a bit of a slowdown into the fourth quarter in terms of EBITDA growth or EBIT growth. I think, in fact, at the midpoint, it's slightly negative. So I want to understand if there's anything we need to think about in the prior year comparison that would explain that? Or any other reasons why that would be the case considering the very strong quarter 3 you just produced.

Okay, Gregor. Let me take the first one, and then René will take the second one. On the capital allocation, again, Gregor, we speak exactly to what we have said. And when it comes to business for us, to the earlier points from Cedar, yes, of course, there is an optimal side. There is optimal multiples, to your point. But in a portfolio of businesses and in a global company, you cannot only say, okay, we don't have a -- to be very specific, we do not have an M&A criteria to say if it's 5.1x, we don't move or if it's 4.9x we always move. This is not how it works, guys. Then from our perspective, this is not practical because in certain markets, you pay certain multiples. We have a global share price and a global valuation, but in one market, you pay a different multiple than you do in other markets. Look at our share price. Look at Indocement. Then it's probably listed, look at Accenture that's probably listed. Look at Morrocco where it's probably listed. You have different multiples and it's not 5x. So I cannot answer your question in a way to say everything that's 5.1x will then go into dividends or share buybacks. That doesn't make any sense. And by the way, the other point you should not forget -- what does it mean this 5x or 6x or 4x? Careful. Our strategy implies if we do it right, we target significant synergy contributions in those acquisitions. That is much different from embarking to other business lines or other geographies. That's the pure reason why we also should be able to do 6 or 7 or even 8x acquisition, if after synergies, they are at 5x. Great. That's fine. But that's sometimes not so visible to all of you out there. But that is one of our M&A criteria. In the end, after synergies and full integration, they should make a significant and most immediate contribution to our financial numbers, and that is the target with the capital allocation. And on the guidance, I push over to René. All I'm saying is, guys, bear with us. The year has 12 months, and we always need to keep something in our pocket. So René, you go ahead.

Thanks, Dominik. So Gregor, I would agree with Dominik. He alluded already to we would be at -- hopefully, at the upper end, and then as you know, in November, December, it can be harsh winter or it's a winter player. And if I would be able to predict this, I would not work here. I would buy some options or something on weather. But that's tricky. But rest assured, you hear us both saying, we are very comfortable to be at the upper end, and then we see how the year finishes.

But there's not like an asset gain or property gain in the prior year, something like that, and nothing like that.

No, there's not a huge property gain. No.

No, no. It's purely operational. And it's clear, we are celebrating 150 years. We are all ambitious guys and now I'll let you dream. Okay?

Next question is from Brijesh Siya from HSBC.

I have two questions as well. So the first one is on the acquisitions and divestments. So you talked about EUR 2.5 billion is the divestment proceeds and EUR 1.5 billion, acquisitions. Could you give us a little more flavor about what's the kind of average range of multiple that was -- you've done it? And what's the kind of ROIC you are expecting, explicitly the equities that you have made? And the second comment you made on the presentation, your focused markets. So could you please remind us of a strategy, whether within -- I know you talked about and comment that you would like to have in the markets where you have a significant position. So that means clearly the markets where you are not #1 or #2 are kind of falling apart, and that's possibly the portfolio you are looking to kind of optimize in future.

Yes, Brijesh, maybe I'll start with the first one, but René can maybe jump on later on the -- if you go back to the chart of the EUR 2.5 billion to EUR 1.5 billion. And I think you're absolutely right, Brijesh. I think that's another angle to look at this, and that's clearly one of our criteria that we do. There was the earlier question from Gregor what's the asset multiple you buy? Well, Gregor, and I come back to your point, if you buy at 7, 8 or even 9x, you can do that if you have 2 other assets that you can sell for 20x. That is not a bad financial deal in the end. So I think in that respect, Brijesh, you know that one of the largest chunk of the divestment of the EUR 2.5 billion was the divestment of the U.S. West Coast and we did not disclose the full price, but we did say that in the end, this was a high -- in the high-teens multiple that we basically got for that one, if not more. So in that respect, I think that indicates to you a little bit -- and we did not buy for those multiples. That's also clear. So in that respect, that's also part of the trick. I would -- we would call multiple recycling. So sell high, buy low. But again, that needs to be market specific, and that's what we are trying to do. And when it comes to the focus markets, it's very important for us that when we started this whole exercise, we went to also all of our 60 markets and evaluated the market position. And now if you look at what we've done over the last 3.5 years, you see that we have done very diligent acquisitions in those markets where we either had a very strong position and we can build it out, or we have a market position that is not so great and we build it out, or we have a market position, shall we say, is difficult to really improve, we have to leave. So take, for example, Spain. We said in the center and south of Spain, we had mediocre market position. We tried for many years to improve it. Didn't work. Sell it. Take Tanzania, traditionally a very strong market position, now a great opportunity to make the clear #1 position by almost doubling the market position with the acquisitions there in Tanzania, fantastic. So that's that one. Indocement, already a good #2 position, but a little bit getting behind after the #1 position has done significant M&A. So we have to do a little bit of a catch-up exercise. We did this in 2 steps. With the leading and the global [ Godard ] acquisition now, so really back to a very strong #2 position. And that, Brijesh, we do market-by-market country, but also within countries to be -- and that's what -- in the end, that's where you create the synergies, where you create the financial returns, and that's how the performance continues to improve.

Dominik, would you tell -- let us know what's the kind of multiple you have paid for the EUR 1.5 billion of acquisition?

Well, it's clearly below 10. I'm not sure, but it's probably even -- again, this is market-by-market specific, but that must be way below 10.

That's way below 10. I would have said 6. 6, 7, 8, much --

And again, you have to be careful. Before synergies and after synergies, no?

Okay. This is before synergy, you're talking?

Yes.

Yes.

Okay, Brijesh, thanks for your question. Next question comes from Yves Bromehead from Societe Generale.

I'll limit to 2 as well. My first one is just sorry, if I'm already tilting towards 2024, but I just wanted to get your views on some of the large European infrastructure markets. I mean if we look at the U.K., it seems like they're already pulling out of the northern part of HS2. In France, we've got the end of the Olympic works in around Paris. And Italy is sort of already struggling on the fiscal side. So I just wanted to get a bit of your initial views on sort of Europe infrastructure, especially for those big 3 markets. And then my second question. Sorry, but more generally, you talked about sort of the re-rating ambitions. And I just had a question. You're already changing your divisional reporting. You're merging North and Southern Europe in together. And if we look at the last sort of 3, 5 years, listed European building materials companies have actually consistently changed their reporting structure and provided less granularity on volumes and prices as well as country-level performance. And that's coinciding with the same time as valuation multiples are compressing, which is clearly different to the U.S. market. So I guess, what do you gain from doing that at the corporate level versus what it could essentially outweigh what investors may lose in transparency and forecasting ability to potentially re-rate Heidelberg or the industry?

Okay. Let me take the first one and then René will talk a little bit about the -- together, we can talk a little bit about the second one. It's not an easy one to answer. It's -- if you would exactly know how to re-rate, that would be perfect but that may be an element. So let's discuss that. On the infrastructure projects, I'll take you through that you -- honestly, we say optimistic. I think they have the funds from the EU. I think overall, I think we see the traction there. I think that's fine. France, Paris, were a little bit long done from our perspective, that is not driving the Paris performance anymore from our perspective. That is done and there are other projects around. So overall, the Olympic impact from our perspective is not in 2023, a big carrier anyway. And on HS2, luckily or not, for us, the elements between London and Birmingham is a far more important one than the one from Birmingham to Manchester, so sometimes in life, you get lucky. I'm not part of the U.K. government. They are trying to balance all the different things. So but there is still a lot of pipeline projects for the one from London to Birmingham. So let's finish that. That will take a couple of years before we get there. I have visited myself a couple of those construction sites, you talk massive volumes, both in cement but especially also in aggregates. So I think in that respect, we stay optimistic on the U.K.

Yves, regarding your second question, so the change of our segment reporting in Europe, you have seen our -- that we see changed something on our management Board level next year. There will be one person to announce who's responsible for now total Europe. So we need to change the reporting requirements we have to do. So that's why we have decided or let's say, we needed media to do so. Now Europe is under Jon Morrish and you know that our valuation is correlating with the transparency. To be honest, the last few years, we were -- where we published everything, volume, servicing [indiscernible] very transparently in the calls, to be honest, with our valuation change, if we now be in more detail with volume and pricing in Europe, question mark. I have not seen this in the past. So -- and you can ask a lot of questions, we know that we are transparent and try to answer whatever we can, but the change of the segment has to do with our management reporting change. That's it.

And if I may add one thing that I think I've said in earlier calls. I had the luxury of or the beauty of having looked at other capital-intensive industry in my past and the one thing that is certainly not driving value is pure volume focus from our perspective. So yes, I get the transparency historically that you are used to. But from my perspective, I'm paid for the final outcome of the financial results. And clearly, volume, it's in our industry not the value driver of great performance. That's at least my conviction. So in that respect, that's one of the reasons. And what I can also say is for the company internally, with a different mantra than I do externally, if you then ask me all the volume questions and then internally, I say, "Guys, we push the overall value with our customers that we create and not just go in too crazy" because we are getting guys, that's one thing I said in the past, and I think it's not yet fully understood. Sorry to say that. The decarbonization gets us out of commodity. Not everybody decarbonize at the same speed. That will fundamentally change the product portfolio of each of the competitor. And if the competitors drive different commercial strategies out of that, that will also then drive different values. But it has nothing to do with volumes. That's why it's not like we are stingy and don't want to give you any numbers. It's really the strategies have changed in our case. And in that respect, we do not gear the company with volume focus only.

Okay. Thank you Yves. Hope that answers your questions. Next question comes from Yuri Serov from Redburn.

Well, two questions. So one, back to capital allocation, M&A. And I just want to make it very clear. You seem to be clarifying the position, but maybe I'm repeating what you already said, but it will be helpful for all of us. So when Heidelberg Materials management previously was talking about large M&A, what investors heard was that you were saying no multibillion deals. Today, you very clearly said no multibillion and multi-country deals. Does that mean that if it's a single country, then a multibillion deal is okay, is within the range, within the scope?

Yuri, sorry to correct you. I went back to my own remarks a couple of calls back, and I said that repeatedly. I said multibillion, multi-country. So that's -- because the mantra of your questions in the past was always are you going to repeat the next [ Hitachi ] [indiscernible]. I said clearly no. And we want to stick to that, no. So in that respect, that's what -- I remember in that respect very well what I said. And again, if we talk about multi -- to get to your point, if we talk about multibillion deals in one country, the overriding principle remains the financial framework. We are not doing crazy things, even if it's doing -- that's what I said earlier, even if it fits strategically super well, that does not erase, I repeat, it does not erase our financial side of our brand. We are continuing to be very disciplined on these deals, and that's what it will be.

Okay. Next question is actually very simple. When I look at your results in North America, you show 1% like-for-like revenue growth. And from what we heard from others and seen in the market, prices seem to be up by 10% or higher, which suggests to me that your volumes in Q3 were down by 10%. Is that correct? And how much of that was driven by the disruption of Mitchell's startup?

Yes, Yuri, well, that's exactly 10%, but our volume were a little bit subdued. You are right. I think well spotted and I think there are 3 elements that I would contribute to that. One is the Mitchell start-up. I think that's what we always said. That did cause some volume in the switchover which we knew. Internally, that was never a surprise for us, but it's something that we had already closed in terms of we see clear improving trends in that respect. So that one, I think, is a tick in the box. Then it's the Northeast that -- the flooding in New York and also the market weakness in the Pacific Northwest. That's the second point. And that combines us then to a third point, yes, we have a little bit a more northern tweak footprint in the U.S. that exposes us to these different markets. I think there is a little bit of a footprint issue combined with the weather effect. But for us, especially in those markets, and I can only -- obviously, you have to believe what we at least see, whenever we benchmark market by market, wherever we can, from a transparency perspective, we are spot on also in volume development. So there is no fundamental tweak in the wrong direction on volumes. All the volume deviation that I see is exactly what I just described and most of those for me in the runoffs, so especially in the place of Mitchell, so for us, no reason for any concern, rather, upside for 2024.

Thank you. Thank you, Yuri. The next in line is David O'Brien from Goodbody.

If I could just extend I think it was Elodie's at the very start. You were talking about stabilization in European trends and then -- and talking about some of the infrastructure projects. You were good enough to give us your outlook for '24 in North American volumes. Overall, what should we expect for volume performance in 2024 in Europe? And then secondly, as Yuri pointed to volumes kind of weak on both sides of the Atlantic, are products with enhanced sustainability characteristics materially outperforming those headline volume numbers?

Okay. Let me go to the first one, stabilization in Europe. Europe is a very diverse set of countries. You have very different developments on the fast new Europe, which is then Western Southern Europe and NEECA as of next year. That we will expand all the way from the U.K. down to Italy, up to Northern Europe, all the way to the east. So I think in that respect, there is not one answer on volume development. In fact, we do see some volume recovery in the eastern parts of Europe, where we had a couple of good volume developments in some of our core markets. Already now, there is clear stabilization coming in that respect. In Western Southern Europe, it's a mixed bag. I would hope the worst is over in terms of volume decline, that we see some stabilization. When and to what extent we see some recovery in some of the markets will, from my perspective, very much depend on the psychology around the interest rate decisions of the ECB. If the ECB, and I think the likelihood of that has clearly gone up in the past couple of days and weeks, would indicate that they are done with interest rate hikes or even indicate that they would think about small decline in interest rates, then I would be far more hopeful in terms of volume development because that would then also reenergize the interest-sensitive private side of things and commercial side of things. So look, guys, also in the past, the world has built at interest rate levels of 4% to 5%. The world has built at interest rates level of 10%. The market has just to customize it and that's why we need to come to an end. Everybody hopes to get a better deal tomorrow. And that's been the delicate piece in Europe. But I see good indications from the central banks that that may come in terms of interest rate hike. So I'm actually seeing some stabilization of volumes in Europe and in part in some markets, as I said, already some pickup. On sustainability, absolutely. You know we are transparent around our sustainable revenues. We'll give you the full year numbers again, in the full year. We see good traction in volumes there, better than the overall markets. So I think that was behind your question, whether they are performing better than the market, yes. So it's not like our sustainable revenues declined by 10% or 15%. No, it's rather the opposite. But obviously, they are also coming from a still smaller basis. So in that respect, from our perspective, we get clear traction on growing our product portfolio on the sustainability side, and we'll obviously continue to do so as we go into the ramp-up of Brevik by the end of '24, beginning of '25.

Thanks, David. Next in line is Yassine Touahri from On Field Research.

Yes. So we just have one question. And I think it's like you're mentioning in your slides that any acquisition that you do needs to fulfills all financial criteria for M&A. And I think that when discussing with your shareholder, there was some concern about you potentially doing this bid at $38 per share on cement material. And I think I just wanted to understand what are those financial criteria? Is it the 10% return on invested capital that you're targeting for 2025? Is it the multiple after synergies? Is it the comparison with your share price? I think the more detail you give on your financial criteria and how you establish discipline, the more useful it will be to reassure your shareholder.

Maybe I'll let René answer first, and then I'll give you my color also on top, Yassine. Thanks.

Yassine, so our financial criteria for M&A are okay that any acquisition needs to contribute immediately to our net profit. That's clear. Number two, after full integration, realizing all the synergies, it should be around our ROIC target of 10%. Yes, these are our 2 main targets. And then obviously, we have the other targets of cash conversion and everything that's clear that any acquisition should as well as with our 45% cash conversion. Then we have, obviously, a sustainability piece. Yes, okay, that's not financial, but that has to -- should be a financial path to sustainability. These are the core values of the company and that needs to contribute to our sustainability strategy. That's very, very clear. And that's obviously, as Dominik alluded to, a strategic fit, no question. We would not buy something cheap if it doesn't fit to the strategy, clear. So we will only buy something which fully fits what we always said. And as I said, the big financials are ROIC, around 10% after full potential and synergies and net profit contribution.

Yes. And I think, Yassine, maybe just from my end, I think it's important to understand that, again, I said that earlier, what's behind this whole portfolio idea? And the idea of focus on the markets where we are focused. It's all about synergies. And that's, guys, why I'm also very cautious to say even a 10x multiple acquisition can be a good deal in the financial framework where the [indiscernible] was just saying, because if you create massive synergies, that is value creating. That is value creating also under very strict financial discipline. And I know that sometimes it's difficult to look at this from the outside because it's difficult for you to assess, especially in the smaller and midsized deals. You know, yes, what multiple that you paid. You know how many synergies that you get, what the final multiple after synergies. How does that compare to your own multiple. And then again, it's about multiple recycling to what I said earlier. We need to -- we are paid for making this mixed picture a very convincing proposal to our shareholders. And we remain stubbornly focused on doing that. And I think the look back over the last 3 years, [ financial, you can do ] the figures, we are humble guys, but we should also be clear that, that was not all that bad.

All right. Thanks, Yassine. Next in line is Ross Harvey from Davy.

Firstly, just another clarification, I'm sorry about this, about the M&A framework. I'm just wondering. You mentioned that a deal would be financed through disposal proceeds and sustainability-linked bonds. But just to clarify, does that mean that you wouldn't consider at this moment in time raising equity for an acquisition? And secondly, I was hoping you might provide more of an update on the CCUS project. Obviously, Brevik is coming live next year. I'm just wondering if the metrics in terms of margin opportunity that you provided last year at Capital Markets Day, are those still realistic?

Ross, thank you very much. You get the shortest answer of the day. No. We are clearly not looking to raise equity through any acquisition. If that was on your mind, good that you asked the question, clear, no. On CCUS, sorry, we can't do -- it's already full and you have a lot of questions. We can only do so much in a Q3 call. We'll continue to keep you updated on CCUS. The Brevik project, it's advanced as well. I'll be getting ready tomorrow. So the project advance is as planned. And by the end of 2024, we should get to the point where we capture the CO2. That's the current fighting target, and that's what we -- that's what we are striving for. And then obviously, we will also get additional data points on whether we make this a successful business case. And I'll tell you, like we did say in the past from our internal projections, this will be a very convincing business case. But fair enough, we need to prove that to you and others that it will be. But jumping the ship sometimes is also too late. So we are moving in the right direction, and we'll lift as we go along the curtain a little bit more, a little bit more, a little bit more. But for us, this remains a very important strategic and financial. Same idea, guys. Not only just because we think strategically, this is a great differentiator, no, strategically and financially. This must be a very convincing target, and that's exactly what Brevik will show. And rest assured, we are razor sharply focused on delivering that.

Great. And because it was a very short answer…

Thanks for your question, Ross.

Because it's a very short answer, can I just double-check then what level of leverage would you move up to post-deal? Or what's the maximum that you would tolerate? Would it be 2x? Or is it above that?

Guys, we have given you the 1.5 to 2 and whether it's -- can we shoot up to 2.1 or 2.2? Maybe. Can we go below 1.5 down to 1.3? Maybe. But are we going to go up to 3 or 3.5? No. Clear no.

Okay. Very clear. We come to the last 3 questioners. One is Tobias Woerner from Stifel.

Two, if I may. Number one, the acquisition -- the plant acquisition in Indonesia. Maybe you can give us a little bit more flavor in terms of margins, how it compares to yours and capacity utilization versus yours for us just to get a sense of how that flows through? And just confirm you said close date by Q4? Was that it? And then secondly, I'll just ask the CCS question a little bit differently. I mean, I think, let's say, in October '21 was a trough year or peak year in context of the CapEx, the industry would have to swallow from a sustainability point of view or from a decarbonization point of view. Now you've been successful with a lot of the projects in Europe now. What level of grounds, subsidies in percentage terms? Is it similar to what you mentioned in the CMD?

Okay, Tobias. Let me take the first one, and then René will take the second one as he has also the answer to the question in the CMD. On Indonesia, as we did not disclose any financial deals, I ask for your understanding that we cannot because that's part of the agreement with the seller. So I can't give you any very specific numbers. But what I can say is, you know that we did mention that in the press release, the plant was only ramping up. It was only opened last year. It was not at its full capacity. So whatever we have paid as on a multiple on EBITDA, that's interesting, but it's not very valuable because they are -- they were just ramping up in terms of -- in terms of capacity. That's another nice example. Maybe we have paid more than 5x multiple for that. But sorry, as it was only X amount utilized, so the multiple, it has 0 value at all in that respect. What is important for us is the following. And I think we've indicated, Tobias, you know the business quite well in Indonesia. We have been -- Java is huge, all the way from Jakarta to the West and Bali to the East. We've done earlier in the year or last year this leasing exercise in East Java that's coming from the East and then we had the white spot in the middle. And very specifically, what we have done in the past years, in a decade, is transport from West Java all of our nice product into Central Java. And those of you who have done the travel, good luck, shows you that's a lot of business you have to travel and that adds cost, especially if there are local competitors who don't pay that. Now we have a local asset that produces locally and now I'll let you dream about synergies again. Here we go again. So this is a fantastic asset addition to Indocement because it really drives massive synergies, both in terms of asset utilization and getting rid of our logistical costs, and we don't talk single-digit millions there. That is significant logistics cost that you occur to serve the market, the growing market in Central Java. CCS, René?

Yes. Just to confirm, we are still calculating the number. We have announced 50% roughly funding. One project is more, one project is less, but we run the exercise to be sure if we need to change something or not. So we want run a few weeks ago, and we still can confirm that there will be the 50% we are roughly right.

So we have one drop up. This will be the last question from [ Jean-Christophe Le Fleur de Blanc from Virgilo ].

Do you hear me?

Yes.

Two questions for me, zwei fragen. First, in terms of the transparency and rebounding of the last questions. The like-for-like growth over the third Q was the 1.6%. Could we have an order of magnitude of the pricing effect maybe? And second question, do you continue to buy your CO2 rights in Europe? Or did you stop? There is a rumor that the German producer stopped buying rights. Can you confirm or comment?

The second question regarding the CO2 rights, as we always say, we are -- we have no need to buy a CO2 certificate right now. So the answer to your question is no, we are not buying anything because we are long. And what was the first question you were asking about pricing? To be honest, we are not -- in that quarterly statement, we are not commenting on pricing. You have seen in our cost which price of our cost was nicely positive. So you can think that the prices versus prior year are okay. And then if you compare to the quarters below -- before, we are not losing any pricing momentum currently.

This is Christoph. I think this concludes our call. Thank you very much for your questions. As always, thanks, Dominik, and thanks, René, for providing such detailed answers. As always, we will be quite busy now after the call, going on the road. We'll be with CO the U.S., Toronto, Chicago, New York. Then we will attend a couple of conferences, UBS conference in London; Barclays ESG Conference in London; [ Wolfe ] conference in London; and the Berenberg Pennyhill Conference, so stay tuned. Hope to see you all there. Thanks for dialing in. Bye-bye.

Thanks, guys.

Thanks, guys.

Thank you.

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