Strategy and Targets
The target of HeidelbergCement is to increase the value of the Group in the long term through sustainable and result-oriented growth. We want to continue to provide our customers with superior quality and innovative products at competitive prices, open up prospects for our shareholders, and offer all of our employees safe and attractive jobs. We incorporate economic, ecological, and social targets in our business strategy by the measures we take to protect the climate and biodiversity, as well as the social responsibility we assume at all locations worldwide.
Thanks to the improvement of result and cash inflow as well as the strengthening of the financing structure, HeidelbergCement has created a solid foundation over the last five years for the acceleration of future growth.
HeidelbergCement is very well positioned to exploit growth opportunities in key mature markets and emerging countries. The investments made in many emerging countries in recent years have resulted in modern capacities that can serve the anticipated market growth. In the mature markets, we have reserve capacities and import opportunities to meet the recovering market demand.
In addition, HeidelbergCement intends to further strengthen the vertical integration in urban centres as a vital driver for future growth and value creation. To this end, we are combining the production sites of different business lines, such as cement, aggregates, ready-mixed concrete, and asphalt, in one production network. Overlapping processes, for instance logistics, are controlled centrally via standardised IT platforms, thereby optimising the use of resources. Business activities are being integrated, for example through shared sales structures and the provision of complete, cross-business-line solutions and additional services. With these measures, HeidelbergCement intends to make better use of its operational capacity than ever before. At the same time, we aim to further improve customer service and optimise supply capacities. For the future, HeidelbergCement plans to build up and strengthen vertically integrated positions in urban centres around the world.
HeidelbergCement will also use its financial resources for carefully selected growth projects in existing regions and tap into new markets as part of a disciplined M&A strategy. In this connection, the takeover of Italcementi was initiated at the end of July 2015 with the signing of an agreement with Italmobiliare on the purchase of 45 % of the shares in Italcementi and is to be concluded in 2016. With the takeover of Italcementi, HeidelbergCement benefits from a unique opportunity to accelerate the growth of the Group. HeidelbergCement is acquiring a valuable portfolio of plants and quarries that ideally complements its own international presence in geographical terms. Italcementi is represented in 22 countries and has strong market positions in France, Italy, the USA, and Canada. Furthermore, the company operates in emerging countries with high growth potential, such as India, Egypt, Morocco, and Thailand. Italcementi also owns extensive raw material reserves in the cement and aggregates areas.
In a market with largely standardised products, cost leadership is a key factor for success. In addition to our consistent focus on cost cutting programmes, emphasis is placed on continual improvement of operational performance at individual production sites. We engage in intensive benchmarking both internally and in relation to competitors, in order to identify optimisation potentials. When it comes to investment, we also aim to keep costs as low as possible through a combination of HeidelbergCement’s engineering and low-cost suppliers worldwide for machines, equipment, and services.
Performance Culture and Local Responsibility
An excellent management team and dedicated, qualified employees are the source of our business success. As a company with a focus on performance and results, we greatly value the competence of our employees and management. The focus is on comprehensive efficiency and clear customer-orientation. HeidelbergCement pursues an integrated management approach, the success of which is based on a balance between local operational responsibility, Group-wide standards, and global leadership. Our local operations are key for the success of our business. Local management bears full responsibility for production, market, and management development, with the aim of market and cost leadership. They are supported by nationwide shared service centers, which handle administration for all business lines on the basis of a standardised IT infrastructure. In order to ensure transparency, efficiency, and rapid implementation of measures throughout the Group, HeidelbergCement has standardised all important management processes. Group-wide, uniform key performance indicators (KPIs) facilitate direct comparability and provide a foundation for continual benchmarking.
We build our long-term success on sustainable business practices. This includes securing access to raw materials reserves with adequate lifetimes and introducing innovative production processes. Alongside the use of alternative raw materials and fuels, and the development of new products, this leads to emission reductions and conservation-oriented handling of our raw materials base. HeidelbergCement is also active in the promotion of biodiversity at its extraction sites, through targeted implementation of biodiversity management plans, partnerships with international and national environmental organisations, as well as organising the international “Quarry Life Award” competition.
Capital Allocation and Financing Strategy
Following the successful reduction in financial liabilities in recent years, HeidelbergCement now intends to focus its capital allocation on shareholder returns and disciplined growth. This plan is based on a steady increase in free cash flow over the next few years and key financial ratios that remain within the investment grade range.
We understand disciplined growth to be the thorough assessment of growth projects in terms of their strategic, financial, and technical attractiveness and with regard to clearly defined investment criteria. In this way we can ensure that growth investments create value for our shareholders. Accordingly, the takeover of Italcementi planned for 2016 was carefully examined and meets the requirements of a value-creating investment.
To improve the results for shareholders, HeidelbergCement intends to pursue a progressive dividend policy over the next few years. The payout ratio is expected to increase to 40% – 45% by 2019. Moreover, the option is to be introduced for any available cash to be returned to shareholders in the form of share buybacks.