HeidelbergCement has updated its financial targets and strategic priorities for the next few years with its Vision 2020.
The German construction materials company has set a target of generating about €6 billion worth of free cash flow after maintenance and before growth capital expenditure in the three-year period from 2018 to 2020.
It is expected that this improvement will be driven by efficiency gains and potential market upsides in the current business cycle, along with disciplined capital spending and a reduction in financial costs.
Dr Lorenz Näger, CFO, said, “We have strong cash generation potential not only from operations but also from financial cost reductions and disciplined capex management.”
Following the acquisition of Italian materials supplier Italcementi – which was completed in 2016 – HeidelbergCement reported that it had seen significant growth. The company now intends to focus its priorities for capital allocation towards increased shareholder returns, de-leveraging and portfolio optimisation.
HeidelbergCement intends to achieve this by continuing its progressive dividend strategy with a pay-out ratio of around 40% and a potential additional return of cash through share buy-backs. At the same time, total net growth of capital expenditure will be limited to a maximum of €1 billion over the three-year period by active portfolio management, which will also reduce complexity and risk by eliminating non-core, high-risk business activities.
Dr Bernd Scheifele, chairman of the management board, said, “Our successful business model is based on the most advanced vertical integration, a simple structure focused on three core business lines and a de-centralized, lean organisation with strong local teams.”
Over the coming years, emphasis will also be put on implementing digital platforms in order to drive estimated savings of about €200 million in operations, maintenance, logistics and purchasing.
With core markets in Southern and Eastern Europe – as well as emerging markets – showing signs of recovery and expansion, the company has confirmed its outlook for 2018.