Heidelberg Materials AG

XMUN:HEI

Earnings Call Transcript 2021-Q4

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the HeidelbergCement's Full Year 2021 Results Call. [Operator Instructions] I would now like to turn the conference over to Christoph Beumelburg. Please go ahead.

[Christoph Beumelburg, Head of Group Communication & Investor Relations]

Thank you, operator, and good morning and good afternoon to everyone listening in. With me today in the room, we have Dr. Dominik von Achten, our CEO; René Aldach, CFO; and Ozan from the IR team. It's an eventful day today. So let's get started right away. Dominik, over to you.

[Dominik von Achten, Chairman of Managing Board]

Thanks, Chris, and thanks a lot for joining in this rocky day. And René and myself will lead you through our full year results. Before we do so, I think we should keep our minds with the people in Ukraine. This is a very, very difficult and tough day and weeks ahead for them. So although we do not have any operations in Ukraine, remember, we sold them in 2019. We still think about the human tragedy that happens actually right now in the Ukraine. Maybe just 1 other comment from our side concerning our business. We do have business in Russia. We run 3 cement plants. The business continues to run. I had a longer chat with our GM in Russia. But I also remind you that the impact on group level is just above 1%, both in terms of revenue and in terms of EBITDA.So the direct impact of our -- of the conflict there when it comes to the Russian business is fairly small. Obviously, there could potentially be secondary impacts. I'm pretty sure you will ask some of your questions along those lines.So if you are fine with that, we've given you the presentation, and I would not now spend an hour to go through the presentation again but rather pick the key points from our perspective, and then we would open up to your questions. And obviously, René will do the financials. So let's dive into it. I'm on the key message slide. I would say despite significant headwinds in 2021, second half, we have managed with a very strong finish in Q4 to pull together a very strong result for 2021 altogether. Revenues plus 8%, EBITDA plus 6%, RCO even plus 12% like-for-like. So I think that is a good performance in difficult times.For us, probably most importantly is the driver of that performance because you all know that typically towards year-end, prices for all products taper off a little bit. And given the cost situation, that was something that could not happen. We have promised you that we will work hard in the Q3 call to manage that Q4 will close the gap price -- the negative price cost gap a bit. And we have done this. So key driver was very successful implementation of price hikes. I'll come back to the details and obviously also good DNA HeidelbergCement's strong fixed cost management.René will go into ROIC development. I think the 9.3, I think that absolutely moves in the right direction, as well as the shareholder return EUR 1 billion for the first time ever, I think, a good combination of dividends and also share buyback. And we also announced today that we will start our next tranche of the share buyback quickly at the latest before March 10. And if I look at current market developments, this may as tragic as the events are maybe quite a good timing in that respect.Good progress, I would say, strong progress on ESG. Net CO2 emissions are coming down. I'll also come to the launch of our local products in that respect, and we also continue to work on our CCS leadership position and continue to expand it. I will also come back to that briefly. And then last but not least, from today's perspective, optimistic outlook for 2022, further growth in revenue, EBITDA and RCO under clearly challenging conditions, especially in the first half, but I'm sure we'll come back to that discussion during your questions.If you then go to the next page, just to remind everybody, we promised to you that we come back consistently on how are we performing against our targets set in beyond 2020 strategy Capital Markets September 2020. In all 5 dimensions, we are absolutely on the right track. In 2 dimensions, we have already reached our targets, and some of your questions may also center around that. So EBITDA margin up from 19% to 20.7%, ROI is not only above 8%, but above 9% with 9.3%. Leverage ratio below the guided corridor of 1.52 to 2 at 1.3, 5 kilograms on cementitious, so 2% down and also the digital transformation, which you know is key for us, already 52% of our global sales covered by the HConnect product.If you then turn to Page 5, you see the details of the Q4 performance. And as I said, I will come to the details in a minute. The driver for the good operating EBITDA and also the okay margin development, especially also the good RCO development, and then obviously, respectively, also the top line management is a little bit volume, but it's predominantly price.If you go to the next page, you see the full year picture on Page 6. That's the split half H1 and H2, where the revenue eventually came out at like-for-like 8% operating EBITDA, up 6% and the EBITDA margin coming down slightly from 21.1 to 20.7, but operating EBIT going absolutely in the right direction.Now importantly, what's the mix that has driven that in Q4. And I'm happy to see, I say this openly that especially our North American business has performed very well. You know that we were sometimes critical -- self-critical on this in the past years. I always said we have some upside in North America. And I'm glad to see that this upside is now slowly materializing, and the trend is clearly painting in the right direction. I'll come back to the details in a minute, but good revenue, good EBITDA development, even margin going in the right direction, and that's despite higher freight rates. So I think that's really a good trajectory we have developed now in North America. Remember, we have said we want to be over proportion structurally improving in our profitability, not 300 basis points, but 500 basis points, and we are well on track to achieve that.Europe, probably the eye of the storm when it comes to variable cost development because it's not only coal and gas, but especially also power on the back of very high CO2 certificate prices also freight. So there is the perfect negative storm. But very key for everybody on the line to understand what we've really changed and we're adamant about that change is the top line ability of HeidelbergCement to raise pricing on the back of strong cost increases.Africa was also good. Volume goods, pricing goods and especially encouraging is that Egypt is now coming back. We are clearly back in profitability. So we have no country left with any negative RCO or RCOBD. So in that respect, we are moving in the right direction.APAC, if you wish to be a little bit critical, you can say, okay, this was not the best year ever in Asia Pacific, you're right. Australia, very important for us has come back. Sentiment is back. Volumes are back, pricing is going in the right direction. So Australia is clearly coming back, but there are 2 great clouds over China, India, Indonesia. Thailand is improving, difficult year in '21 and also Malaysia and Bangladesh are coming up after the big lockdowns.If you go to the next page on 8, you see, and that's important. That's very important. Remember, we were going against a brutally strong baseline in 2020 because Q4 2020 with low energy costs, we -- for the first time, I think, ever, really we hit EUR 1 billion EBITDA in Q4. And we almost got there in the recent Q4 on a good balance between volume development, but especially also a much improved price over cost, still negative, but you see here it at least balanced itself out.If you then go to the full picture, you clearly see that volume development was good and price over cost was EUR 250 million heavily negative. But I think it's important to see later on what's the trend line and the structure of this price over cost development. And then Page 10, very important. You see even in a difficult year like this, margins in the U.S. even improved. We are now almost at 23%, coming up from 21.8% so that's really the right trend, both against 2019, but also against the very positive 2020. And I would say also the performance in Western Europe to lose only 0.4 percentage points is, from my perspective, to be fair to our team, a good performance. The cost explosions were very steep but they have -- and that's crucial. They have turned absolutely the corner in every country on the pricing already in Q4 last year, and that trend continues into 2022. Northern and Eastern Europe, okay, that's geopolitically now not all that easy, but financially, the performance was strong on a high level, okay? The margins have come down a little bit also on the back of very high variable cost, but overall, still a strong performance from Northern and Eastern Europe. APAC, I told you the difference between the different countries, and IAM look at this 25.7% margin. And again, the second area in a difficult environment that has been able, despite higher freight costs and everything to expand even their margins and their profitability.Page 11, you know our continued portfolio management. I'm glad to see that the page over time now gets more green than yellow -- red, sorry. The key divestments with the West Coast, also the 5 transactions in Spain has been done. We continue to divest. We still have countries to go in that respect, but we take our time and watch exactly when do we create the best value for our shareholders. We have no pressure whatsoever to continue that at an accelerated speed. And then on the green side, we want to clearly grow. We want to grow the business without mega acquisitions. We want to grow the business to make our strongholds even stronger. And in that respect, the acquisition, especially in the North -- Pacific Northwest, we've call it and also in the U.K. and Italy are spot on, and that's what we continue to do, Tanzania, we try to close the deal in the first half of this year.And then very importantly, on Page 12, guys, we were sitting here in Q3, where we were hit by the minus EUR 175 million price over cost negative. We did tell you going to improve in Q4, but it's not going to turn positive. And this is exactly what happened. We halved the problem. So we are now minus -- minus 97. But if you look at the developments on the right side, even between October, November, December, by October, the domestic cement sales price was 5% -- 5.5% better than in October 2020. By December, it was already 13.3% better. I think in that respect, that's gross, that's including all currency inflation and everything. But it is visible in our total P&L. And that's why this 13.3% turns into a EUR 8 advanced domestic cement sales price globally. I -- in my 13 times -- 13 years with the company have not seen even half of that magnitude, of course, also the costs are increasing. But I think that price that flexing of the top line is for us a very crucial achievement. And I think the trend is moving absolutely in the right direction.With that, René, the floor is yours.

[René S. Aldach, CFO & Member of the Managing Board]

Thanks, Dominik. So let's talk quickly about the main financial metrics, which are on Slide 14 over here, Dominik talked about already about revenue and EBITDA. We've hit our guidance and we're able to improve our like-for-like EBITDA by 6%, which is, I guess, a pretty strong result in '21. And then leverage ROIC, we come back later to this. In the middle, you see the clean earnings per share, that's up 15% and this is obviously a function of a good net income development plus the reduced shares because we have canceled the shares of the share buyback. So I guess a 15% earnings per share growth in this environment is not too bad from my perspective.On this slide, you see Slide 15 is shareholder return went over the last few years and what we have said in 2021, I'm rounding up now this EUR 968 million to roughly EUR 1 billion shareholder return, which is split to the HeidelbergCement AG, dividends, the dividends to minorities, for example, in cement pays a dividend, we need to give the share to the minorities. And then obviously, the share buyback of EUR 350 million, I guess, that's, again, we do what we promise and I guess, EUR 1 billion, which we can easily finance out of our free cash flow is a pretty, pretty good number.Here you see the ROIC, Slide 16. On Slide 16, the reported numbers are 9.3%. Yes, this number, you will find this within our annual report. And you see slightly above 9.9%, which is the number if you deduct the tax expense we have in -- for the gain of the U.S. West disposal, which is a one-off. So the 9.9% for me internally is the right number. But in our accounts, you see the 9.3%. Obviously, the good improvement is a function of 3 things. You see our invested capital is rather flat. You see it in the green bars, it's flat. Our RCO went up by 10% or like-for-like 12%. And then our tax rate went down due to the overproportional profit in the U.S. and U.K., where our tax rates were, let's say, very low because we have still losses -- we had still losses to be utilized. So very strong nearly 10% on a comparable basis, I think very strong numbers.On the next slide, you see -- let's go to the left, our free cash flow generation. You see the reported number is 1.187, yes, but that includes as well the amount, the EUR 306 million, we need to pay taxes on the U.S. West disposal gain, so that is included in our free cash flow, which obviously has nothing to do with our operational business. So that has to be taken out. And then you have other one-offs with EUR 75 million. As you know, we have repaid the bonds where we had the interest payment for the next 2 years in December, which hits us with EUR 33 million and then we had COVID tax relief in 2020, which we always said we need to pay this in 2021, so these are as well, let's say, one-offs, which are not coming back.So the real cash flow is EUR 1.6 billion, which is a cash conversion rate of 40%, I guess, which is as well okay. Net debt position on the right is roughly EUR 5 billion, and you see the free cash flow contribution of 1.2. Net M&A is mainly the cash in from the West disposal. And I have to mention that the Corliss acquisition, we have paid already as well in December. So the EUR 150 million for Corliss is already included in our net debt number. And then you see the dividends, the EUR 1 billion going out. So EUR 5 billion, I guess, very, very strong results.If we go to our full P&L, yes, we have discussed until RCO, if you now go to the additional ordinary result. As you know, in 2020, we had big impairments due to the corona crisis. And in 2021, you see here, plus EUR 481 million. And that is the gain from the U.S. West disposal, which explains EUR 466 million out of this, which -- then you come to a delta of EUR 4.2 billion, but that's I've just explained. The financial result improves again -- and this includes as well already the EUR 33 million we have paid for buying back the bond earlier. And why did we improve here? Yes, we have interest rates on recultivation, that's accounting and then the other interest payments for the other debt went down because we've reduced the debt. So very good results here as well.Income taxes, minus EUR 600 million, that looks high, but there's a lot of movement in the deferred tax line, and we have roughly EUR 300 million West disposal impact. So that's [ EUR 3.5 million ]. And then we had in 2020 due to the impairment with the deferred tax impact of plus EUR 175 million. And in 2021, the U.K. changed the tax rate. So we have a deferred tax liability increase of EUR 50 million. So this explains the data. So overall, the income taxes, if you take these items out are in very good shape compared to the profit we are making.And then we come to a reported net profit of EUR 1.75 billion, and adjusted for the [ AOR ] and the big tax movements we come to a group share of nearly EUR 1.6 billion which is EUR 8 per share, I guess, and that's a very, very strong result.So now I hand over to Dominik, and he will guide you through the sustainability topics.

[Dominik von Achten, Chairman of Managing Board]

Yes, René, thanks a lot. And you know that sustainability is core in our strategy. And strategy is 1 thing, execution is the other. And I think we are progressing well in 3 dimensions, and I'm going to lead you through those 3 dimensions. One is obviously the CO2 road map and with it, the reduction in CO2 emissions will come down another 2% to 565, and the driver was a very good improvement on the Clinker factor because that's basically coming with very limited CapEx. That's also important. These are improvements that can be done anyway before we come to carbon capture, that is probably a little bit more CapEx intensive. But this year can be done with very limited CapEx.So Clinker Corporation comes down to 72.9%. So that's a real strong improvement year-over-year of 1.4 percentage points. Alternative rate also moving in the right direction, 26.4%. That certainly are, I think, in the right direction.Then on the next page, Page 21. You know that we want to further expand our leadership on carbon capture utilization and storage. The projects are advancing well. And I just want to make sure that everybody understands the project in Brevik, and René was just in Brevik again 2 weeks ago, is actually moving ahead well and we are still planning to bring this onstream by 2024 with the volume of 400,000 tonnes of CO2 captured and the supply chain is local. The supply chain will function up there. It's a very robust supply chain. We've aligned with all the partners. And that will mean that we will be the first ones in the world who will produce CO2-free Clinker to a large extent in industrial scale. So I think in that respect, we are moving in the right direction.Clinker, you've probably followed also the developments there. We continue to focus to build the first carbon-free cement plant globally, 1.8 million tonnes. And then high net growth. The project is also moving in the right direction. We are in continuous discussion with the U.K. government on the permitting and on the funding side. And then Edmonton, you probably followed our announcements. It's also progressing. Originally, we targeted to come by 2030. We've tried to accelerate that project, and we are now working to do this anywhere between 2025 and 2028.And then all these nice technical improvements obviously need to drive customer value. And that's why it's very important for us that we only -- we focus on the CO2 reduction in Clinker, but eventually going to make our concrete very sustainable. And I'm happy to see what our countries around the world are doing and we just brought you the German example, how you can do this in a very savvy and professional way.They have now our German team and have been in close contact with them, but also with our customers because I wanted to understand, does that hit the customer sentiment. They have not only focused on the CO2 reduction, which is up to 66%, depending on the cement and Clinker you put into that product. But then also looks at other topics like recycled water, recycled aggregates, transport efficiency. And I think there is a lot of arguments to play the feedback we get from our customers is very positive indeed. So that is very encouraging in our path going forward to also get the top line growing and profitably growing in the future. So stay tuned. On this one, we will obviously give you more update in our upcoming Capital Market Day on May 24.This then also needs to turn in terms of transparency. You know that we are super transparent on this as transparent as you want to be or can be. So all the key ratings are going in the right direction. We continue to work with them to have -- give them for transparency to be able to score. And then also, obviously, EU taxonomy is now for us a key point to consider. We have the transparency being worked on. And then, obviously, we follow the legal restrictions that the EU has put in place on that.And we are very confident that we will paint a very good picture, especially when it comes to the implementation of the sustainability road map that we have, we're very positive and convinced that eventually the EU taxonomy will lead to a situation where it makes our significant efforts going forward, very transparent, and that should help us as a company also you and our analysts and shareholders.If you wrap it all up, business outlook for 2022 from today's perspective is that the demand is intact in all business lines. I had a lot of calls over the past 2 or 3 days, with our key countries. The demand is as of today, still in strong shape. The pricing, as we indicated, is also continuing its track record from Q4 2021. Of course, energy cost inflation is still high. I'm sure there will be some questions from you coming on that topic, and René also shared with you the cash generation. You should assume that we stay razor sharply focused on our free cash flow generation, just to make sure that everybody understands that free cash flow for us, especially in volatile times, a key item to watch, and we will obviously continue to do so.We turn this into a formal guidance, which we will also give in our annual report with a strong increase like-for-like in revenue, a slight increase in operating EBITDA and RCO, obviously, like-for-like. CapEx net will be slightly below the EUR 1.2 billion and ROIC will stay around the 9% for now. Let's wait and see how this develops over time. But for now, this is what we formally guide. And then on the leverage side, we stick to our current guidance that was out since 2021, 1.5 to 2x. I'm sure you have a couple of questions around that.With that, I would hand back Chris to you. And obviously, to all of you, we are happy to get your questions.

[Christoph Beumelburg, Head of Group Communication & Investor Relations]

Thank you, Dominik. Thank you René. Operator, you may want to start the Q&A session.

[Operator]

[Operator Instructions] First question is from the line of Luis Prieto from Kepler Cheuvreux.

[Luis Prieto, Head of Construction and Building Materials]

Question for me. Could you give us an updated quantification of cost inflation pressures in 2022. And I would be interested in particular regarding energy inflation on a per tonne cement basis. If you can give us a number, is it going to be plus 15, plus 20, plus 30. What is it effective? What could it be effectively in your 2022 accounts?

[Dominik von Achten, Chairman of Managing Board]

Let me make 1 general remark and then I will ask René to -- Luis, I understand your question. It's an important one, but we -- be fair to us that we will not be able to give you an exact guidance on -- in this current volatility on energy cost developments in 2022 because there is obviously and René gives you some of those details. There is the question where do we stand today with our current coverage, what have we covered down the road, then how our forwards developing, how is the spot market developing and then you put the current volatility on top. So this is a -- and that's the general comment I want to make. This is an hourly management task now. It's not a daily. It's an hourly management task to follow the development. And I think that's good DNA of HeidelbergCement to be able to do that and be very flexible in where we need to react. But maybe, René, you could give a little bit more of the picture of how we have planned at this point -- at this point today for 2022 as much as we can say, in the broader sense of things.

[René S. Aldach, CFO & Member of the Managing Board]

Thanks, Luis, for your question. As Dominik said super volatile and the changes day by day. But just to give a little bit of flavor, and I guess the others we're pretty interested. We had a look, obviously, about our forward-buying policy and strategy. And what I can tell you already is for the year 2022. And I'm saying now before, now we had the crisis, we have overall roughly a forward buying coverage of roughly 50% already for 2022. And for Q1 and Q2, we are pretty well covered. So there the risk now is, let's say, limited. Obviously, the prices for H1 are much higher than last year. We all know this, yes. And just a little bit more and more flavor on this. If you look now, the spot prices for electricity are even much lower than the forward prices, yes. And so we -- for the rest of the open positions, we stay a little bit spot, but that is not much for the first 6 months. Anyhow, so we think we have a limited impact on the -- of the crisis right now. If it's not exploring further, yes. But 1 thing is clear, H1 will be -- we see much higher energy prices on our P&L as last year. But as Dominik alluded to, we will cover this by price increases, which seem to be well in the market.

[Operator]

The next question comes from Gregor Kuglitsch from UBS.

[Gregor Kuglitsch]

Maybe a couple of questions. So just can I drill you down on that comment you just made there. Do you think you can -- with the 13% exit rate on price cover the cost inflation at least sort of in the first half? I don't want to pin you down in H2. I appreciate there's so many moving parts. But right now, do you think you can cover cost inflation? Or do you think it's still a little bit of a negative price cost spread?And then secondly, I think you mentioned that you caught up with a lot of your colleagues. So if you would like to share your sort of regional perspectives where you see strength or less strength by various key geographies for Heidelberg, that would be much appreciated.

[Dominik von Achten, Chairman of Managing Board]

Gregor, maybe on the -- on your first question about the price versus cost gap. Yes, the positive trend, if you draw the line in Q3, Q4 into this year continues. So the gap is further closing. Is it going to close month-over-month, that's difficult to say because the volatility, as I said, is fairly high. But the pricing efforts, if that's also behind your question, continue. I think it's clear that we have made it very clear to our customer base because they also need some sort of reassurance that we cannot give them -- I think anymore. I did say that already last year, and this is clearly now the implementation has been done. So all the customers know that this is a volatile times. And that means that the price increases already implemented end of last year, beginning of this year will be followed wherever necessary by additional price increases even before the first half of the year will end. So in those markets where it is necessary, we will continue to drive pricing.So in that respect, I cannot promise you that every month that we will end up with a positive gap, but the trend line at least Gregor goes in the right direction to eventually be able to close that gap fully and that must be clearly our target.On the regional differences, I would say the eye of the storm because the cost increase is the highest is obviously Europe. And there, what we see is very encouraging. You know that the pricing you have been long around the block with us is sometimes a little bit sluggish in Europe. We have a very good market position, and we really no need to prove that we can also leverage that good market position in a way that if costs are moving up like this, if we start to deliver superior products, then we also want to get the fair share of that value creation we do on the customer side.And in that respect, in all markets in Europe, the prices are moving up, moving up in most cases, double-digit percentage points. So yes, there is deep cost increases. But yes, there is also a structural change in pricing. That is, to a lesser extent, true for Eastern Europe. It's equally true for Northern Europe, where we have clear double-digit price increases in the market. And then you go around the world. I think it's a little bit less pronounced in some of the Asian countries given the current situation that I described, it's a little bit less pronounced in the U.S. in some certain markets. But it's still very significant in the U.S., but let's also keep in mind the cost increase in the U.S. is not necessarily the same, especially not in power than it is in Europe. So that doesn't necessarily mean even if the absolute price increases in the U.S. are smaller then the margin will not move, it's rather the opposite.So I think overall, we are satisfied with what we see Gregor. And as I said, importantly, the ice is broken on this one in a positive way and the price dynamics will continue where they needs to continue.

[Operator]

Next question is from the line of Sven Edelfelt from ODDO BHF.

[Sven Edelfelt, Research Analyst]

So 2 for me. I had a question on slag at first. I understood the CO2 footprint for slag is set to increase to 50 kilograms of CO2 per tonne. Is it included in your 565-kilogram of CO2 per tonne in 2021? And is there a risk of further legislation change? And how do you see this evolving going forward? And how does that affect your CO2 target in 2030?

[Dominik von Achten, Chairman of Managing Board]

Yes, Sven, I'm not fully sure your voice was not so easy to understand. I mean I understood your question, but it didn't come across very well in technology-wise. But if I understood it right, you asked a little bit about the slag and the impact on the CO2 road map. And would that kind of come back with maybe double check with you whether you really got your question answered. But my understanding is what's the slag impact and the potential reduction in slag availability on the CO2 road map. We have taken that into account to the best of our knowledge, what we know from today, things can always change, but I think it's clear that over time, the slag availability will come down, and that's certainly something that is reflected in our CO2 road map and will be reflected in our plans going forward that is a very country-by-country issue because there are some countries that are very much driving their products on the back of strong slag contribution, but there are other countries where this doesn't play a role at all. And we are obviously working strongly to mitigate the reduced slag availability. Yes, that's part of our road map from today's perspective.

[Christoph Beumelburg, Head of Group Communication & Investor Relations]

Next question, please? Next question...

[Operator]

Next question is from the line of Yassine Touahri from On Field Investment Research.

[Yassine Touahri, Founding Partner]

So my question is on the EUR 8 per tonne price increase that you've announced in the call. Could you give us a bit more color on where it was the most effective? And could you also quantify any additional price increase that you've implemented at the beginning of January of that you are considering to implement in April? Could we expect pricing to be up high single digit to double digit in 2022 at the group level?

[Dominik von Achten, Chairman of Managing Board]

Yassine, thank you very much for your question. You know that we are sensitive on pricing communication market by market. That's not what we want to do and can do. Also, there are legal restrictions and we take that very serious. We give you hindsight the total figure on global scale, which shows you, and I think that's the most important thing. One thing is announcement of price increases, the question, what do you really get to the P&L. And what we told you in December '21, we actually got to the P&L. So I think that's the first and very important step.What I can say is that, yes, the clear target, as I said earlier, the clear target in some of the key markets is that we do get to double-digit percentage price increases, that's not in every market, but there is that's more than in 1 market. So you will see that we will continue to move the top line. And as I said, the trend that we have started and that has accelerated even through Q4 is continuing in its trend into 2022. And we will do everything to continue that as long as possible through 2022 and beyond.

[Yassine Touahri, Founding Partner]

And can you quantify any sequential increase that have been successful in January compared to December? Is it like EUR 4, EUR 5 additional price increase? Or is it something that you can quantify? Or is it too early?

[Dominik von Achten, Chairman of Managing Board]

No. It's -- I mean, obviously, we know the number, but careful guys. We are not going to -- we cannot go market by market for price increasing in terms of absolute terms. I give you the indication that you should assume that in key markets, this is a double-digit percentage increase and that moves already in January, and that's the most we can say at this point.

[Operator]

Next question is from the line of Cedar Ekblom from Morgan Stanley.

[Cedar Ekblom, Executive Director & Equity Analyst]

I've got 2 questions. Just on your points that you made about the price cost development continuing to improve and the momentum there moving in the right direction. Considering price increases year-to-date, could we get a positive price cost outcome in the second quarter? I would expect you've got reasonable visibility on your energy costs, at least in the end of Q2?And then just on your net debt to EBITDA guidance ended 2021 with 1.3x and you're guiding to a similar level of CapEx in 2022 and a broadly stable EBITDA outcome and yet you're guiding net debt to EBITDA up. So does this mean that we should be prepared for much larger shareholder returns considering that your M&A agenda seems to be sort of moderate or in line with where you were previously talking about it? I just want to understand why net debt-to-EBITDA should go up?

[Dominik von Achten, Chairman of Managing Board]

Yes, Cedar. As always, you've made your homework well. So I think the spreadsheet has worked. So absolutely, I think we're happy to answer that. I'll start and then René jumps in. Maybe on the price over cost, as I said earlier, Cedar, we are clearly targeting to continue to close the gap. Can we guarantee you exactly when this will work? Difficult to say. As I said, into 2022, the positive trend of closing the gap has continued. So -- and we have not seen a change yet. So I think there will be, at some point in 2022, where this will turn positive. But whether this is exactly now end of Q1 or going to Q2 difficult to judge from our perspective because that is a fairly dynamic situation.But as I said, the trend is clearly going in the right direction. It is our clear target to close that gap at some point in -- during 2022, and that's what we are day in, day out fighting for.Now on your other calculation, you're absolutely right. Guys, we are very open and fair with you. We still have our Capital Market Day to come up, where we talk a lot about capital allocation. Until then, it is exactly true what we have told you in our last Capital Market Day in September 2020, where we said we give you a financial framework that we operate in. You remember this waterfall chart where we said, okay, what are we going to do? We stay strict on key sustaining and maintenance CapEx, we pay our dividends. We will get to our deleveraging and then it gets into a competition between share buybacks or share -- direct shareholder return and M&A.And to your question, it will exactly play along that line. That's why we have accelerated our second wave of the share buyback. We are going to start this at the latest by March 10. Originally, we say that we plan to go later during the year. So we have accelerated that. But we've also accelerated the growth of our M&A growth pipeline. So the pipeline is filling and fitting. And 1 thing I can tell you clearly, Cedar, we are not going to go up for 1 multibillion euro acquisition. We promised that, and we stick to that promise. But we also promised and I think some of you have not believed that we want to grow the company and we want to grow it very profitably.So that's why we will have a large M&A pipeline of small- and medium-sized bolt-on acquisitions, Corliss is a nice example. And that pipeline is filling and fitting and especially in volatile markets, there may be some quite attractive opportunities, again, small and midsized acquisitions in our stronghold market positions in our current focus of vertical integration and transformation where it makes sense to move.And if all dimensions or many dimensions are in single yields go in the right direction, we are happy and ready to go, and that will be the balance through 2022. And again, Cedar, we will make some more specific comments in the Capital Market Day in -- at the end of May. René, any anything to add from you?

[René S. Aldach, CFO & Member of the Managing Board]

No, Dominik, you said it all just as well to remind you all and the M&A transactions we want to do. If we have them, we fit the financial metrics, we will do them. And obviously, if we then pay something, look at the Tanzania one, it's not yet closed. You all know this. If we close this in Q2 or Q3, the debt goes immediately on our balance sheet, and we only get limited EBITDA for that year. So that's a little bit of timing function. So -- and the rest, Dominik already explained, we will come out at the Capital Markets Day with some more information.

[Dominik von Achten, Chairman of Managing Board]

And Cedar, it's early in the year. We also need some -- give us the opportunity to first again deliver and then we'll also obviously make sure that our targets are ambitious going forward. But here, this is exactly -- I think you understood this is balancing out between shareholder return, M&A and growth of the company in a very disciplined financial framework.

[Operator]

Next question is from the line of Harry Goad from Berenberg.

[Harry Goad, Analyst]

I thought that was quite interesting updates you gave in terms of the timing of the Brevik and the other carbon capture projects. And I guess just in that regard, can you give us any sort of information and I appreciate it is very early days around how we should think about possible CapEx per plant and indeed, maybe the OpEx uplift just to give some ballpark feel for the cost landscape.

[Dominik von Achten, Chairman of Managing Board]

Harry, that's an important question. If you do not mind, I would ask you to wait for our Capital Markets Day. I know all of you are waiting to get some more in-depth information. Obviously, we are in the comfortable position to have more and more real data points from all the projects that we have announced and that are moving. So I think we are assembling these data points to give you an as good answer as even possible by Capital Market Day. So in that respect, important question, but please bear with us until the end of May.

[Operator]

Next question is from the line of Elodie Rall from JPMorgan.

[Elodie Rall, Research Analyst]

I just would like to talk about volumes for a second. We talked a lot about pricing. But I have a question on volume. So first of all, on the impact on EBITDA bridge in Q4, it seems like with lower volumes in Q4, you've had a bigger impact on your EBITDA if I refer to your presentation for about like EUR 94 million impact on EBITDA. So can you remind us here what happened with the operating leverage and the different moving parts.And second, still on volumes, you're talking about strong like-for-like revenue growth in '22. Of that, how much do you think you can -- how much are you targeting in terms of volume growth for the year?

[Dominik von Achten, Chairman of Managing Board]

Yes, Elodie, I'm not so sure whether we have understood fully your first question. We all look a little bit -- I'm not exactly sure because the volume did actually move quite well in Q4. I think the 1 piece of the presentation, you saw that -- so I'm not quite sure what you are referring to in terms of negative volume development. Is your question coming from regional split? Or could you help us on what exactly your first part of the question was?

[Elodie Rall, Research Analyst]

Yes, sure. If I look at your Slide 7 on Q4 volumes, you're showing minus 1% in cement sales volume, 3.5% in aggregate sales and a minus 2.4% in ready-mix sales volume. And then if I look at the bridge on EBITDA, then the impact on volumes is EUR 94 million on the bridge. And then if I refer to the presentation in Q3, you have a EUR 37 million impact on net volume in your Q3 bridge, when the development in top line doesn't seem to be more negative. So I'm just trying to understand what's the drop-through there? Are the moving parts that we should have into account for modeling?

[Dominik von Achten, Chairman of Managing Board]

Okay. I would suggest Elodie let's come back to that maybe at the end of the call. And we have to check -- again, I'm not fully -- I'm pretty sure whether we follow -- have followed your argumentation. We'll double check this and come back at the end of the call on that one, if that's okay for you. And then what was your second part again on the question?

[Elodie Rall, Research Analyst]

The volume expectation that you have...

[Dominik von Achten, Chairman of Managing Board]

Sorry, 2022 volume expectation. Now for us, yes, we said we're going to increase our revenues strongly in 2022. And it's clear from our current assumptions, Elodie, this is predominantly price and to a significantly lesser extent volume but we do not expect the volumes to decline sharply or something. So I think it's clearly a price before volume strategy. The product gets better with all the efforts we do that means also that we need and want a higher price for it, but it doesn't necessarily mean that we are pushing for the last tonne. This is also a country by country, market by market is a little bit different. But the key answer to your question is price...Okay. Then if you don't mind, let's continue with other questions and then we come back to your first question at the end of the call, okay?

[Operator]

Next question is from the line of Arnaud Lehmann from Bank of America.

[Arnaud Lehmann]

I have 2 questions, please. Firstly, just coming back on Slide 12 on your pricing trends. Could you give us an indication how would that look for Europe? Because it's looking like you're taking a much more dynamic views on pricing, and that's helpful at the moment, for sure. But how can prices go up in Europe when things are usually ramping down, I would say, for month announce in the winter season.And related to that, I guess, if we see pricing moving more closely with cost going forward, that means that pricing might actually have to come down once coal, electricity and everything come down 1 day. Are you comfortable with a more, let's say, volatile pricing trends for your cement business? And are you confident that net-net, this is actually positive for your earnings?And my second question was on CO2. Maybe too simplistic, but you've reduced your CO2 per tonne by 2% year-on-year, which is a good achievement. But at the same time, your volumes -- your cement volumes are up 4%, and I appreciate that the base on volumes was not very high compared to 2020. Does that mean that you've actually increased your overall CO2 emissions in 2021? And I guess the question is beyond the CO2 per tonne, are you also trying to reduce your overall CO2 emissions in million tonnes?

[Dominik von Achten, Chairman of Managing Board]

Okay. I think that's -- thanks for both of your questions, Arnaud. And I think let's turn to your first one on pricing, and you are along with the business already. And you know this has been always an issue with pricing not only volatility during the year, but also this cost -- cost focus and then the direct relation to pricing. I give you my personal answer and my conviction from HeidelbergCement perspective on this.First paradigm to break was the point that we just accept that we have yearly pricing, and we just accept that in Q4, the prices -- sorry, if the environments edge, then also these paradigms need to move, and that's what we were so focused to get done, that this also works in Europe. So that was a little bit between the lines.The second question, it is not so that is pricing reasons from everywhere but Europe? No. Also in Europe, in our business, at least, the prices are moving significantly and I did say in some countries, it is double-digit percentage points and that has started at the end of last year, but it continues well into this year. So that's -- and 1 step after this when I said, breaking the ice and paradigm this is what we are doing -- trying to do. And obviously, to your point, that was also in your question is what does that mean eventually? I cannot give you the answer for HeidelbergCement. We are working to upgrade our products. That's why we talk about EcoCrete, that's why we talk about the carbon capture side. But with an upgraded product, also the price point will change.If you take all that discussion about high energy costs and everything aside, we strongly believe that our superior products that we develop down the road, deserve a significantly, I said in the past calls structurally different price points and that's what we are fighting for. So for me, this cost increase is not necessarily a cost increase that may be triggered now by some of the commodity price development. It's not solely justified by those. That's at least our conviction of HeidelbergCement. How that plays out? No, we all don't know, but that's our clear conviction.And then on CO2, the full figures on CO2 will then be published in our report. So that's not final, final, final yet, but it's absolutely clear that down the road, we will also try to bridge our absolute overall emissions. And in line with whatever you was asking to run for the last time maybe 1 strategy, but I would say that's probably maybe a little bit historical strategy, we have shifted gears and we want to bring more value to our customers with the tonne we sell. That includes a higher price, but that also includes an overall lower CO2 footprint. And if you make the multiplication of those 2 items, then the top line both more by price than volume and the CO2 footprint comes further down.

[Arnaud Lehmann]

Very interesting.

[Dominik von Achten, Chairman of Managing Board]

Okay. Then Elodie, if you want to come back to -- sorry, before the next question, Elodie. If you want, we have -- I think we've now gotten where you wanted to get. So sorry for taking the turn here, but René, maybe you'll just get to Elodie's point.

[René S. Aldach, CFO & Member of the Managing Board]

Hi, Elodie. So we have a look now quickly. So the positive volume margin comes mainly from North America and Africa. And then you can say it's a mix effect because these 2 areas in Q4 come with a pretty good margin. Even though we have in Africa, we have lower volumes. And that's due to the fact that we have lower volumes in very low-margin countries and the proportion of high-margin countries with good profits is much higher. So it's a mix effect and mainly coming from NAM and Africa due to better, let's say, relative volume performance in terms of margin in a few countries. So that's the answer.

[Operator]

The next question is from the line of Tobias Woerner from Stifel Europe.

[Tobias Alfred Woerner, Research Analyst]

Just very quickly on -- in the third quarter release, you referred to the energy cost being up EUR 196 million to EUR 1.3 billion. You didn't give that detail in Q4 unless I'm wrong. I guesstimate that the numbers sum up for the full year, which you normally show in the annual report at EUR 1.85 to let's say EUR 1.9 billion. Can you just confirm that number, please, to me? That would be helpful. And just remind us quickly in terms of your dividend, payment. I couldn't see dividend per share anywhere in the release unless I'm blind, which is possible given my age. But if you could just remind us about your dividend policy.

[Dominik von Achten, Chairman of Managing Board]

Okay, Tobias, let me get to your second point on the dividend, and then René would come to your first point. On the dividend, I know this final figures or the current figures for this year are coming 4 weeks earlier than prior. And I think there is a change now in procedure not with the same call. We now also announced our dividend. That's very -- this is a formal exercise on the dividend side. There is an opinion on my end. There is an opinion in the Board, but we need to take a formal Board decision during March or the beginning of March, that then goes as a proposal to the Supervisory Board. That then proposes it in our annual report and invitation to the general assembly -- to the general assembly, and that's where the dividend is then decided. Now that's the formal answer.The informal answer is, we will, again, stick to our promises. We said we are working on a progressive dividend development and that's exactly what we will do. Now what number exactly will come out, bear with us, there needs to be some additional excitement, but let's wait and see how that plays out, but that's the situation on the dividend. And then René maybe you add on the other question.

[René S. Aldach, CFO & Member of the Managing Board]

Tobias, on energy last year in the 2020 annual report with EUR 1.5 billion. This year, it will be around EUR 1.9 billion. So that should answer your question.

[Tobias Alfred Woerner, Research Analyst]

Okay. And -- that's very helpful.

[Operator]

[Operator Instructions] Next question comes from the line of Yuri Serov from Redburn.

[Yuri Serov, Research Analyst]

Yes. Can you hear me?

[Dominik von Achten, Chairman of Managing Board]

Yes, we can hear you well.

[Yuri Serov, Research Analyst]

Okay. Very good. So 2 questions for me, I'll ask them one by one, if I may. One is again about pricing, and there's a lot of discussion about pricing on this call, right. I just want to ask you, so you talked about double-digit pricing. The indices that we see being published for the cement industry for a variety of countries don't show that. So are you raising your prices ahead of your competition? Is that sustainable? Or will you just say that the indices that we look at are wrong.

[Dominik von Achten, Chairman of Managing Board]

Yuri, it's -- we can only talk about our figures. And I'm very, very -- you've never heard me comment on any competitive behavior, and you will not going forward. That's not our -- that's not our duty. We are paid for a good performance and an increasingly good performance for HeidelbergCement. We have shared with you what we have actually realized and you then have to make your analysis what others have realized, I can only tell you what we have realized. And I've also shared with you what we want to do in general terms as much as I can legally do.So I think that, that is clearly our strategy. And as I said, and I know some of you were skeptical about this. I strongly believe, I've been 13 years now in the industry directly. And I strongly believe this is going to be a junction going forward because if you, as a company, and that is our clear strategy, work on superior value for the customers, only then you can ask for superior pricing. To just think that our customers are stupid and we can just ask for how our prices if our import costs are lower, and we just want to drive the margin with the same products. If I would be the customer, I say, go to hell, I buy somewhere else.The question is, do we deliver eventually better products with better service to our customers. And only then we can justify higher prices, and that's exactly what we are doing market-by-market and product by product.

[Yuri Serov, Research Analyst]

Well, I understand that. And I'm not asking you to comment on the strategies of your competitors, but the competitive context is very important to understand what is going to happen to you. That's the reason why I'm asking how your price increases compared to the others.

[Dominik von Achten, Chairman of Managing Board]

Yes. I agree. I think I fully understand your point, Yuri, this is a competitive situation. But maybe you also now understand why we are so razor-focused on the portfolio management. If you have some market positions somewhere across the world, that's 1 thing, but if you continue to improve your market positions, I'm not talking about crazy market share per business line. That's not what I'm after. The game of vertical integration, having a good market position in very focused markets in all business lines: cement, ready-mix and aggregates. You know that's been the strategy for a longer time.I strongly believe that's my -- that's HeidelbergCement's conviction, this is a clear competitive advantage going forward. And I can only show you the figures that we have jointly achieved as a team and then you need to judge how that compares to the competition, okay?

[Yuri Serov, Research Analyst]

Well, okay. No, look, I'll need to read between the lines. And what I'm reading is that you probably are pushing the prices above competitive -- competitors. And maybe that's the reason why the volume outlook is not particularly rosy but I get your point. Can I ask the second question, please? And it's just technical, and I just wonder whether you can give us this number. So your net emissions in 2021 went down by minus 1.9%. You round it up to 2%. Can you please...

[Dominik von Achten, Chairman of Managing Board]

What did you ask, sorry you broke up, what went down, the net emissions.

[Yuri Serov, Research Analyst]

Okay. Let me repeat the question. So your net CO2 emissions in 2021 went down by 1.9%, okay 2% the same presentation. Can you please tell us by how much your gross emissions went down?

[Dominik von Achten, Chairman of Managing Board]

As I said -- as I said, Yuri, I ask for your understanding we are now 4 weeks earlier than in the past. In the past, we published this in our sustainability report in June, we want to be very specific and exact on what we are doing there with the CO2 emissions because this is a very relevant figure. Yes, we have the relative emission at this point, but we are still finalizing our figures on the total emissions. So bear with us. But as I said to the earlier question, however, this moves now quarter-over-quarter, year-over-year. For us, eventually, the target as a group must be to reduce not only the relative emissions but also the total emissions, not sacrificing the growth path and the profitability path of the group. That's what we are paid for, and that's what we are targeting for.

[Operator]

Next question is from the line of Matthew Donen from Morningstar.

[Matthew Donen, Equity Analyst]

Just carrying on with the volume theme, based on your discussions with customers, did any mention possible impact of labor shortages having an impact on their demand?

[Dominik von Achten, Chairman of Managing Board]

Matthew, it's a fair assumption. I don't think there is a global answer for this. I think there is in some markets there seem to be labor volatility, I call it. Labor shortage is always a matter. This moves quickly from one and to the other during COVID, now take the U.S., if I may say so, there was maybe some driver shortage because they were more with [ Robinhoods ] than on their trucks. I'm not so sure after the very recent developments, whether that is going to continue that way.So that is a very volatile situation that we watch very closely because we need the labor force, but it also would accelerate and continues to accelerate our automation efforts, digital efforts to make sure 3D printing, you heard our communication around that to make sure that we enable our customers, and again, guys, I talked about superior product, superior customer service, in order to structurally change the price. And this is exactly also what is happening. If we deliver and put the customers into a position where they can place the product with half the labor, this is intangible value for our customers, and that deserves a significantly higher price point.

[Matthew Donen, Equity Analyst]

Understood there. And then just another question for me, sorry, on the cash flow. What are some of the levers you're looking to pull to get the cash conversion back to around 45% given CapEx and EBITDA are expected to remain relatively stable?

[Dominik von Achten, Chairman of Managing Board]

Yes. Okay, René, do you want to take?

[René S. Aldach, CFO & Member of the Managing Board]

What you have seen in our guidance, we will say we will be below the EUR 1.2 billion CapEx, yes, that's in the normal -- in the formal guidance, we said EUR 1.2 billion, yes. Now we will be low. We pushed that clearly below so that we get an increase over there, which is, I guess, the plan. And then obviously, we had working capital outflow in 2021, very strong Q4 receivables up, we put our inventories a little bit fuller with coal to get advantage of the pricing. So we will have a little bit -- should have a better year in 2022 regarding working capital and then we reduced the CapEx a little bit. So that should free up cash to get close to that number that you just mentioned.

[Operator]

Next question is from the line of Mike Betts from Database Analysis.

[Michael Frederick Betts, Director]

My question is a bit around today's events. But if we end up with energy shortages in Europe because Russia supplies so much of the gas that goes into the power plants, et cetera, and maybe fuel has to get redirected. I had a 2-part question, please. Firstly, of your solid fuel, how much of it do you already have in terms of inventory are the forward purchases that you referred to earlier actually guaranteed? Or could they get redirected? So I think you have 3 parts. And also on the grinding plants, it's a European problem, I guess, potentially. Could you shift the time that you did the grinding. So if you could only get electricity at night, you have enough grinding capacity that you could shift production to night time?

[Dominik von Achten, Chairman of Managing Board]

Yes, Mike, your questions hint to us that you have been long in the industry. I think that's a good -- 2 very good questions. I'll answer the second one, and then I would hand over to René to go to the first one.On the grinding, you are absolutely right, yes. That's now a very interesting dynamic. And they are just guys, I know sometimes it's not so easy for you to follow also what we do on the digital side. But 1 of our key digital products, for example, does exactly that, Mike. It does nothing else but what linking the spot price of electricity to the production planning on the grinding plant and matches that. And yes, there have been days where we pushed grinding production like hell. So if you talk to our GM in Germany, there are Sundays where we produce at negative electricity prices. And there are other days where he says, guys, go into maintenance, silos are okay and to take advantage of too high energy prices. Absolutely, Mike, this is crucial to manage this crazy volatility on the pricing and also the data between [indiscernible] spot that René was mentioned earlier. You have -- that's also why I don't think -- if we would tell you now we are 100% covered, I'm not sure whether from your perspective and from our shareholders perspective, this would be great because there are opportunities depending on wind, on solar, especially in Germany, that you can take on spot prices that they are windows of opportunity that we want to take.So in that respect, spot on the question, it's clearly important to manage the power cost going forward and we are really pushing also this too that I'm mentioning is now rolled to, I think, rolled off to 80 plants already. So this is with great feedback and great saving potential. So just 1 indication of where digital can also significantly help because this is an exercise you need to do minute by minute, hour by hour. But René, maybe you...

[René S. Aldach, CFO & Member of the Managing Board]

Mike, let's talk about your question regarding fuel coverage. So obviously, there's a difference if you have the stuff on stock, which we can then use immediately. And or if you have that contracted. So because we don't know will the suppliers keep to their commitments in the contract. So I can't tell you if they will do or not. That's a little bit in the air, but we are talking here about the coal supply for Europe. And we have a very, very comfortable position right now. We have a certain volume covered, which would bring us let's say, pretty long.And then we are already looking obviously to see what would happen if we can't get the contracted coal, we would -- we are looking now with our trading arm to see if we can get it from somewhere else. Obviously, that has an impact on the cost if we do this, but let's wait and see. If everybody sticks to their commitments regarding the contract, I think we should be all right.

[Operator]

Next question is from Nabil Ahmed from Barclays.

[Nabil Ahmed]

I has actually only one. Given the very strong price hikes, clearly the strongest we've seen for a very long time in the industry. How do you think about volume elasticity? Are there markets I'm thinking at [indiscernible], for instance, or U.S. public and markets where you are on a fixed dollar budget where you could see a negative impact on volumes?

[Dominik von Achten, Chairman of Managing Board]

Nabil, obviously, in every industry, in every market, there is a price volume elasticity. I think we are all long operating in the industry, and we know that and we keep that obviously in mind. But -- so if the background of your question is, are you going to send your volumes into half? No, we are not planning to destroy our good market positions. That's not what we are after. But are we running for the last time? No. That's clearly not the case because also with this high volatility, keep in mind, not every tonne has the same profitability. That's at least our spreadsheet, and you guys are very familiar with spreadsheets, not every tonne has the same profitability.So in that respect, I think we try to do our homework. And again, we are focused not to do this by doing this on the back of our customers. We do this in -- with a clear conviction that eventually, this will only work if our customers get also superior product for a higher price and not the same product or a higher price. So I think that's exactly what we are working towards midterm. And I think the EcoCrete example is an interesting one. So let's wait and see how this all plays out, but I think we've been very open and sharing with you what's on our mind.And I think it's a combination because yes, when we go back to the call Q2 last year, where we had similar discussions, you said come, come, what you're telling me night to night. Here we are at least with 1 half year where we have now in Q4, especially proven that something does happen in our P&L if we raise the prices, and if we can flex them and let's wait and see how this plays out. As we said, the trend continues so far into 2022. So we are optimistic that our strategy is working in its implementation, and then we'll go forward with some good optimism in order to also be able to manage this very high volatility.

[Christoph Beumelburg, Head of Group Communication & Investor Relations]

So thank you, Dominik. Thank you, René. It's good to end on an optimistic note. Thank you very much for dialing in. We have our next earnings call on May 12. That's also the day of the AGM and then obviously, we send out the safety date for our Capital Markets Day on May 24, and we look forward to welcoming you here at our headquarter in Heidelberg. Thank you very much. Bye-bye.

[Dominik von Achten, Chairman of Managing Board]

Thanks, guys. Thank you very much. Bye.

[René S. Aldach, CFO & Member of the Managing Board]

Bye.

[Operator]

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