This week Dr Bernd Scheifele, HeidelbergCement Group CEO, has provided more detail on the company's Vision 2020 while the company's regional Board members gave further guidance at the producer's Capital Markets Day 2018.
The way forward for HeidelbergCement will be based on its three core business lines of cement, aggregates and ready-mix/asphalt. Of these, the cement market provides 50 per cent of group revenue and 61 per cent of group EBITDA. The geographical footprint for the company's cement business now is also encouragingly a 54:46 per cent split between developed and emerging markets. The cement unit includes 93Mta capacity in Europe, 51Mta in Asia, 33Mta in Africa and 19Mta in North America. In addition, the company is vertically integrated with 20bnt of aggregate reserves and 1750 ready-mix plants worldwide.
In the last 12 months, HeidelbergCement has begun the digitalisation of its operations and predicts to make EUR200m savings on operational excellence in the upcoming years.
Vision 2020
HeidelbergCement still envisages making EUR1bn-1.5bn of disposals up to the end of 2020. These disposals will come from non-core businesses, assets in weak market positions and idle assets, Dr Scheifele said. All proceeds will then be directed at financing growth capex. Meanwhile, the company will target leverage to fall from 2.6 times to under two times by 2020 or net debt below EUR7bn.
Europe
Dr Dominik von Achten, deputy chairman of the Managing Board, gave further explanation of the markets and HeidelbergCement’s strategy in western and southern Europe, areas targeted for improvement. Prospects for growth are seen through divestment of the limestone business in Germany to focus on core businesses as well as logistics optimisation in Belgium, The Netherlands, UK and Germany. HeidelbergCement will see its Lengfurt cement plant complete a EUR50m capex programme in 4Q18, while the Burglengenfeld cement works has completed its new kiln and calciner as well as seen the commissioning of two raw mills. The Schelklingen plant in Germany will also complete the EUR124m modernisation of its new kiln and calciner in 1Q19.
HeidelbergCement also sees synergies in Italy, France and Spain and ongoing consolidation in Germany, Italy and UK. HeidelbergCement will focus on market recovery in south European markets where Spain provided three per cent and Italy nine per cent of group revenue in 2017. Italy, Spain and France are markets in recovery, while Belgium, The Netherlands and Germany are in expansion. However, in the UK, prospects remain uncertain due to Brexit. HeidelbergCement will focus on urban centres for improved growth in Europe.
In terms of consolidation in Spain and Italy, Dr Von Achten reported that HeidelbergCement will actively participate in Spanish consolidation, while in Italy the company hopes to integrate Cementir and advance pricing to return to profitability. HeidelbergCement is now the market leader in Italy with 24 per cent market share. Robert Callieri, HeidelbergCement’s Italy CEO, said cement demand in the country was almost 30Mt below peak levels with the bottom reached in 2016 with consumption at 300kg per capita. However, domestic cement consumption is expected to expand by three per cent YoY between 2018-20.
Dr Von Achten expects construction growth to return to the UK in 2019 after a flat 2018 with HS2 and Heathrow third runway among the projects that will create growth in the UK for the company. HeidelbergCement can also benefit from mega projects in Paris as it bids for the 2024 Olympics, the EUR2bn expansion of Disneyland Paris and the EUR25bn Grand Paris Express and residential programme. The German market will be energised by 1.5m new residential apartments by 2021 and the Federal Transport Plan by 2030.
North America
Jon Morrish, member of the Board, also gave an update in terms of the company's operations in North America, where HeidelbergCement is strongest in the northern US region. However, California could be the big growth state for the building materials producer where it sees Senate Bill 1 investing US$54bn over the next decade on upgrading roads and infrastructure with further potential business from the 2024 Los Angeles Olympic bid. The Essroc acquisition has already delivered US$125m savings in 2017, stated Mr Morrish.
Indonesia
In southeast Asia, a leading market for HeidelbergCement is Indonesia, where it has 25Mta of cement capacity, mainly on the fast-growth region of West Java. Cement demand was estimated by Christian Kartawijaya, Indonesian CEO of HeidelbergCement, at 66Mt, and forecast to rise to 91Mt in 2022. HeidelbergCement will look to see prices recover as demand and utilisation increase.