The FINANCIAL — On the occasion of Capital Markets Day in Bergamo, Italy, HeidelbergCement presents its Vision 2020, updating financial targets and strategic priorities for the three-year period starting 2018.
On the back of a proven business model with focus on operational leadership and a strong asset base, the Group aims to increase free cash flow generation to about €6 billion in the three-year period until 2020. This improvement is expected to be driven by further efficiency gains and potential market upsides in the current business cycle as well as disciplined capex spending and a further reduction in financial costs, according to HeidelbergCement.
Following the significant growth over the past two years led by the successful Italcementi acquisition, the company intends to focus its priorities for capital allocation towards increased shareholder returns, deleveraging and portfolio optimization. HeidelbergCement intends to continue its progressive dividend strategy with a target pay-out ratio of around 40%. In parallel the company plans to reduce its leverage to below 2.0x and / or net debt to below €7 billion, paving the way to achive a solid BBB/Baa2 rating. In addition, the company intends to limit its net growth capex in the three-year period to a maximum of €1 billion by active portfolio management and at the same time reduce complexity and risks. Proceeds from disposals in a range of €1 billion to €1.5 billion are planned to be used to finance selective growth investments between €1.5 billion and €2.0 billion. Further available cash may be allocated to additional deleveraging or higher returns to shareholder in the form of increased dividends or share buy-backs, according to HeidelbergCement.
Three levers to drive cash flow generation
HeidelbergCement will focus on three levers to further increase free cash flow: continuous efficiency improvements, active portfolio management with a disciplined capex approach and reduction of financial costs.
Based on its strong track record with respect to efficiency improvements, HeidelbergCement strives to continue to be the pioneer in the sector in realizing further potentials. Additional focus in the next years will be on the implementation of digital platforms in order to drive savings of in total more than €200 million in operations, maintenance, logistics and purchasing. On top of that, HeidelbergCement expects to benefit from market improvements as core markets in Southern and Eastern Europe as well as in emerging countries enter the recovery and expansion phase of the current economic cycle. In total, the company assumes an organic EBITDA growth of around 5% per year over the three year period.
In addition, HeidelbergCement intends to further improve its asset base by active portfolio management. On the one hand the company follows a selective M&A strategy to strengthen the business in existing geographies e.g. by increasing vertical integration. On the other hand it targets to reduce complexity and risk by disposing of non-core businesses, market positions with high risks or limited growth potential and idle assets. In the three-year period until 2020, HeidelbergCement expects to generate proceeds from disposals in the range of €1 billion to €1.5 billion that will be used to finance growth capex in the order of between €1.5 billion and €2 billion. Overall, net growth capex will thus be limited to a maximum of €1 billion. In addition, the company sees potential to reduce maintenance capex spending to a level of 55% of depreciation and has introduced a new free cash flow oriented bonus scheme on local level in order to reach this goal.
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