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.

Operational excellence and digitalization

In a market with largely standardised products, we differentiate ourselves through our high level of customer focus and service quality in order to realise the full value of our products and services. Moreover, we ensure a competitive cost structure in all areas. A key objective is to make sure that the productivity enhancement in input factors such as working time, capital, and energy at least offsets inflation- related cost increases. For countries with high inflation, this is valid to the extent as we cannot compensate inflation by increased sales prices in the market.

The basis and prerequisite for operational excellence is a culture of continuous improvement. We engage in intensive benchmarking both internally and in relation to competitors, in order to identify optimisation potential. Our goal is a stable position in the top quartile for all operational benchmarks: efficiency and cost structure, productivity, margin, growth, and value creation.

In this respect, the digitalisation of our value chain plays an increasingly important role, from raw material mining through production and logistics processes to the interface with the customers. On Managing Board level, the Chief Digital Officer coordinates the digital transformation and our involvement in digital ventures with the aim to improve the quality and efficiency of our production processes and increase our customer service.

Sustainability

For us, sustainability means integrating economic, ecological, and social goals into our business strategy. In this context, we published our Sustainability Commitments 2030 in October 2017, where we have defined the fundamental principles of our sustainability strategy. Health and safety of our employees is of crucial importance.

Our overall goal is to completely prevent accidents and damage to health. We offer our employees performance-related, competitive salaries, and we are committed to fair employment conditions and compliance with applicable labour and employment laws. This means, in particular, that we do not tolerate any form of discrimination, harassment, or infringement of laws and regulations.

With respect to environmental protection, we are committed to continuously reducing our ecological footprint. We accept our share of the global responsibility to limit the worldwide rise in temperature to below 2° C. We comply with environmental standards and are bringing our pollutant emissions to below the cement industry average. We also protect natural raw material reserves by increasingly replacing them with alternative raw materials.

We support the social and economic development of our neighbouring communities and ensure transparent communication with all stakeholders. Compliance with applicable laws and regulations is a matter of course for us. Our overall goal is to create adequate added value for all of our stakeholders: for our customers, employees, shareholders, the communities to which our locations belong, and the general public.

Growth and vertical integration

The creation, development, and maintenance of vertically integrated market positions in the cement, aggregates, ready-mixed concrete, and asphalt business lines is the core of the growth strategy of HeidelbergCement. Vertical integration not only refers to the merging of production sites of different business lines at a local level, but also includes the cross-functional control of business processes using integrated IT systems and the comprehensive management of business activities – for example, through common sales structures and the provision of complete, cross-business-line solutions and additional services.

Our goal is to create strong and defendable market positions in markets with long-term potential. To achieve this, we avoid markets with unjustifiable high political, economic, or compliance risks. We retain key market positions regardless of economic cycles. As a whole, they are not subject to active portfolio management.

Financial performance

Our stated goal is to earn a premium on the cost of capital. To this end, we aim to achieve a balance between short-term profitability and long-term value creation. This means using our capital in a responsible and disciplined manner. Before investment decisions are taken, they are carefully reviewed in terms of their market, strategic, financial, and technical attractiveness and with regard to clearly defined investment criteria. In addition, we consider sustainability aspects, such as the impact on human rights and nature. Last but not least, we ensure that our geographically diversified portfolio gives us direct access to the cash flow from our ongoing business activity.

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 customerorientation. 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 and provide a foundation for continuous benchmarking.

Shareholder returns

In spring 2015, HeidelbergCement defined value creation for shareholders and disciplined growth as the strategic priorities for its capital allocation. To improve the results for shareholders, HeidelbergCement will pursue a progressive dividend policy. The payout ratio is expected to amount to around 40% for the 2020 financial year. Moreover, the option was introduced for any available cash to be returned to shareholders in the form of share buybacks. At the same time, the company aims to achieve a stable investment grade rating and reduce its dynamic gearing ratio to 2.0x by the end of 2020 (before application of IFRS 16).?