Accelerating growth at the right time
Acquisition of Italcementi Group Heidelberg, 28 July 2015
Slide 1 – Acquisition of Italcementi – 28 July 2015 Disclaimer
This presentation contains forward-looking statements and information. Forward-looking statements and information are statements that are not historical facts, related to future, not past, events. They include statements about our beliefs and expectations and the underlying assumptions. These statements and information are based on plans, estimates, projections as they are currently available to the management of HeidelbergCement. Forward-looking statements and information therefore speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.
By their very nature, forward-looking statements and information are subject to certain risks and uncertainties. A variety of factors, many of which are beyond HeidelbergCement’s control, could cause actual results to differ materially from those that may be expressed or implied by such forward-looking statements or information. For HeidelbergCement particular uncertainties arise, among others, from changes in general economic and business conditions in Germany, in Europe, in the United States and elsewhere from which we derive a substantial portion of our revenues and in which we hold a substantial portion of our assets; the possibility that prices will decline to a greater extent than currently anticipated by HeidelbergCement’s management as a result of continued adverse market conditions; developments in the financial markets, including fluctuations in interest and exchange rates, commodity and equity prices, debt prices (credit spreads) and financial assets generally; continued volatility and a further deterioration of capital markets; a worsening in the conditions of the credit business and, in particular, additional uncertainties arising out of the subprime financial market and liquidity crisis; the outcome of pending investigations and legal proceedings and actions resulting from the findings of these investigations; as well as various other factors. Should one or more of these risks or uncertainties materialise, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the relevant forward-looking statement or information as expected, anticipated, intended, planned, believed, sought, estimated or projected.
Unless indicated otherwise, the financial information provided herein has been prepared under International Financial Reporting Standards (IFRS).
Slide 2 – Acquisition of Italcementi – 28 July 2015 HeidelbergCement and Italcementi – a natural fit
Unique opportunity to accelerate growth Acquiring high quality assets with and achievement of mid-term goals excellent geographical fit
Significant value creation potential Right time for transaction to capitalise on through synergies and operational recovery in key markets efficiency
Fully aligned with announced strategy of accelerated growth and increased shareholder returns
Slide 3 – Acquisition of Italcementi – 28 July 2015 Contents
Page 1. Italcementi overview 4
2. Transaction and timeline 14
3. Combination and its merits 18
4. Financials and value creation 29
5. Conclusion 39
Slide 4 – Acquisition of Italcementi – 28 July 2015 Italcementi overview
150 years old family owned company
Major global More than €bn 4 revenue generation building materials group 71m tons cement capacity Operations in 22 countries
Mature markets: France, Italy, USA, Canada, Spain
Strong market Emerging markets: India, Egypt, Morocco, Thailand, positions Kazakhstan Urban centres: Paris, Milan, Chennai, Cairo, Bangkok
No CapEx backlog
High quality Well established local brands assets, brands & know-how Fully deployed central IT platform Leading R&D capabilities
Slide 5 – Acquisition of Italcementi – 28 July 2015 Italcementi financial overview
Revenues Recurring EBITDA
€bn Cement Volumes (mt) €m Margin (%) 70 25.0% 60 1,447 1,404 20.0% 50 6.0 5.9 5.8 1,113 40 15.0% 5.0 4.7 4.7 934 972 4.5 4.2 4.2 842 3.8 30 701 643 631 649 10.0% 20 5.0% 10 0 0.0% 2000 2006 2008 2010 2012 2014 2000 2006 2008 2010 2012 2014
Net Result Net Financial Debt
€m €bn Net Debt / EBITDA (X) 2.7 449 424 3.5 2.4 2.4 2.2 2.2 2.2 3.0 2.1 2.0 163 143 1.8 1.9 2.5 71 46 2.0
-3 1.5 -107 1.0 -165 0.5 -395 0.0 2000 2006 2008 2010 2012 2014 2000 2006 2008 2010 2012 2014
Significant recovery potential ahead
Slide 6 – Acquisition of Italcementi – 28 July 2015 Strong market positions in emerging markets and recovering countries
Belgium(2) Bulgaria
USA & Canada(1,2) Kazakhstan(2)
Morocco Thailand
Spain India(1,2)
France Egypt
Italy Greece
Top 3 Outside of Top 3
Strategic portfolio of leading market positions in recovering and emerging countries
1) Refer to regional market shares 2) Combined position
Slide 7 – Acquisition of Italcementi – 28 July 2015 Southern European markets now positioned for growth Acquisition at the trough of the cycle
Italy France Spain
Consumption of cement (mt) Consumption of cement (mt) Consumption of cement (mt) -81% 56.0
-49% 41.7
CAGR 28.1 4.8% -27% CAGR 25.2 24.8 3.2% 22.6 23.0 CAGR 21.9 21.4 21.1 20.9 19.9 20.4 19.2 18.1 17.8 18.4 19.0 5.2%
13.6 12.5 10.7 10.8 11.3 11.9
Peak 2011 2013 2015E 2017E Peak 2011 2013 2015E 2017E Peak 2011 2013 2015E 2017E
Early yet encouraging signs of recovery
Source: Euroconstruct Slide 8 – Acquisition of Italcementi – 28 July 2015 Growth potential from US recovery and emerging markets
USA Egypt Thailand Morocco
Consumption of cement (mt) Consumption of cement (mt) Consumption of cement (mt) Consumption of cement (mt) -31% CAGR 128.0 8.0%
111.2 102.9 CAGR 95.4 6.5% 88.7 81.7 78.5 59.0 CAGR 55.0 72.0 50.0 52.0 12.2% 48.7 49.2 48.0 39.0 32.5 30.1 30.1 31.0 CAGR 25.5 26.8 3.5%
16.1 15.9 14.9 14.0 14.0 14.0 15.0
Peak 2011 2013 2015E 2017E 2011 2013 2015E 2017E 2011 2013 2015E 2017E 2011 2013 2015E 2017E
North America and emerging markets – robust and sustainable growth ahead
Source: PCA, MSER, Global Cement Report
Slide 9 – Acquisition of Italcementi – 28 July 2015 Global portfolio of world class assets
Cement capacity (mt) / Total: 71 Aggregates quarries / Total: 98 RMX plants / Total: 417
Egypt 14.5 Egypt 0 Egypt 20
Italy 12.5 Italy 17 Italy 104
(1) France / Belgium 11.9 France / Belgium 69 France / Belgium 185
Thailand 6.3 Thailand 0 Thailand 33
Morocco / Mau. 5.5 Morocco / Mau. 4 Morocco / Mau. 23 NewMarkets Bulgaria 2.4 Bulgaria 0 Bulgaria 0
Greece 0.8 Greece 1 Greece 1
(1)
North America 7.1 North America 3 North America 29
India 4.8 India 0 India 0
Spain 3.2 Spain 4 Spain 6
Kazakhstan 2.0 Kazakhstan 0 Kazakhstan 3 Established Markets Established
Unique opportunity to add a global portfolio of world-class assets and strengthen each of HC’s geographic clusters
Note: All figures are 2014 and excluding trading operations 1) For HC Slide 10 – Acquisition of Italcementi – 28 July 2015 High quality, strategically located operations with nearly €bn 3.5 CapEx invested in recent years
Rezzato – Italy
1.3 mt cement capacity One of the most efficient cement plants in Europe 75% emissions, 30% variable cost reduction
Aït Baha – Morocco Devnya – Bulgaria
2.2 mt capacity plant 1.5 mt cement capacity Equipped with Concentrated Solar Power More than 30% reduction in fixed and (“CSP”) variable costs Operating since 2011 Significant emissions reduction
Solapur plant – India Shymkentcement – Kazakhstan
1.2 mt cement capacity 1 mt/year grinding plant Replace the current four wet-process lines Located in Maharashtra with a new “state of the art‟ dry-process line Expected to be operational in H2 2015 Significant improvement in efficiency
Slide 11 – Acquisition of Italcementi – 28 July 2015 Strong capabilities in research and innovation
High-performance and technologically More efficient production processes advanced materials
i.nova
P E R F O R M A N C E
Palazzo Italia, the Italian Pavilion at Expo 2015. Constructed by using Biodynamic cement, an innovative solution developed by Italcementi Group
Slide 12 – Acquisition of Italcementi – 28 July 2015 Well-established local brands in key markets
Italy: Thailand: Morocco:
France: Egypt:
USA & Canada: India: Kazakhstan:
Slide 13 – Acquisition of Italcementi – 28 July 2015 Contents
Page 1. Italcementi overview 4
2. Transaction and timeline 14
3. Combination and its merits 18
4. Financials and value creation 29
5. Conclusion 39
Slide 14 – Acquisition of Italcementi – 28 July 2015 Key transaction terms
Two-step transaction: Acquisition of 45% stake followed by mandatory tender offer Implied Equity Value of €bn 3.7 to free float shareholders
Contractual agreement to acquire 45% stake owned by Italmobiliare S.p.A. Enterprise Value of €bn 6.7(2)
€10.6 per share; combination of cash and HeidelbergCement shares
Maximum of 10.5 million Implied EV/EBITDA multiple (3) HeidelbergCement shares to be issued at 7.9x the higher of floor price of €72.5 and price at closing(1) Valuation of cement capacity Customary representations and warranties ~85 US$/t Mandatory tender offer to acquire remaining shares at an offer of ~€10.6 per share in cash on completion of 45% stake €bn 1.0 cash generation from acquisition asset disposals
1) The new shares shall be issued at €72.50 or an average price of a 30 days period prior to closing, if the latter is higher. 2) Based on Italcementi net debt of €bn 2.2, and the net balance of associates, minorities and pension obligations of €bn 0.8 as of 31 December 2014 3) Based on current EBITDA consensus of €m 675 for 2015 and full run-rate synergies. Slide 15 – Acquisition of Italcementi – 28 July 2015 Disposals contribute significantly to transaction financing
Disposal of non-core IT, energy business Disposal of and one building to Italmobiliare already non-core assets agreed
Disposals of Focus on overlapping geographies single assets
Confident to achieve €bn 1 from disposals
Slide 16 – Acquisition of Italcementi – 28 July 2015 Timeline and transaction structure at a glance Current timeline envisaged closing of the transaction in H2 2016
Announcement of the Merger filing Execution of capital Mandatory public transaction / including potentially increase against tender offer HC Q2 results required disposal of assets assets / remedies
28 July H2 2016 2015
Closing of Transition mandatory management Sale of non-core Closing of 45% stake public planning commences asset acquisition tender offer
Slide 17 – Acquisition of Italcementi – 28 July 2015 Contents
Page 1. Italcementi overview 4
2. Transaction and timeline 14
3. Combination and its merits 18
4. Financials and value creation 29
5. Conclusion 39
Slide 18 – Acquisition of Italcementi – 28 July 2015 The combination and its merits
Excellent geographical fit
Significant synergy potential
Enlarged platform to roll out HC’s industry leading efficiency management concepts
Strengthening R&D through combination of HC’s and Italcementi’s state of the art capabilities
Unlocking value and increasing earnings and cash flow potential
Slide 19 – Acquisition of Italcementi – 28 July 2015 Excellent geographical fit
HeidelbergCement Italcementi Attractive new Completion of HC‘s HeidelbergCement and Italcementi market positions in network in Europe fast growing and North America markets
Adding strong Strengthening of market position market positions in in the key countries Mediterranean area
Highly complementary asset portfolios
Slide 20 – Acquisition of Italcementi – 28 July 2015 Strong position in urban centres Capitalising on increasing urbanisation
Stockholm Edmonton Oslo St Petersburg Vancouver Montreal Seattle Toronto Munich Moscow Chicago Benelux Stuttgart Indianapolis Boston Frankfurt New York London Warsaw Philadelphia Prague Paris San Francisco Washington DC Los Angeles Lyon Atlanta Bordeaux Milano San Diego Bucharest Tbilisi Carolinas San Rome Sofia Houston Sebastian Marseille Istanbul Dallas Bilbao Naples Athens Miami Malaga
Marrakech Agadir Astana
Cairo Xian
Nouakchott Guangzhou Uttar Dhaka Pradesh Hong Kong
Freetown Mumbai Bangkok Monrovia Chennai Accra Sydney Kumasi Kuala Lumpur Lome Perth Kinshasa Dar-es Salaam Melbourne Jakarta
HeidelbergCement Core Urban Centres Footprint Strengthened by Italcementi
Slide 21 – Acquisition of Italcementi – 28 July 2015 Reinforce strong global market positions
Aggregates sales volume - 2014 Cement capacity (1) Ready-mix sales volume - 2014 3 mt 390 mt mm
275 265 259 31
200 168 58 56 71 49 244 12 94 24 65 129 37
Combination set to create a global #1 in aggregates, #2 in cement and #3 in ready-mix
1) All figures are as of end of 2014, except CRH capacities which are as of latest disclosure, including minorities
Slide 22 – Acquisition of Italcementi – 28 July 2015 Significant synergy potential Run-rate synergies
Minimum run-rate synergies of €m 175 to be achieved by 2018 with potential for additional upside onwards 175
In €m 25 Purchasing
125 25 Commercial
Sales and General 50 Administration
50 75 Operational
2016 2017 2018
Almost 30% of total target synergy run-rate to be delivered already in 2016
Slide 23 – Acquisition of Italcementi – 28 July 2015 Meaningful savings support financial rationale
In €m CapEx Working Capital €m 750 cash savings until the end of 2016 415 25 335
75 Total €bn 1.3 CapEx 220 220 220 savings in 5 years 390
260 220 220 220 Efficient working capital management to achieve €m 100 savings until 2016 2015 2016 2017 2018 2019
Significant savings from capital and CapEx efficiencies in addition to cost synergies
Slide 24 – Acquisition of Italcementi – 28 July 2015 Experienced management team with strong focus on operational excellence
Management Board
Dr Bernd Dr Lorenz Dr Dominik Daniel Andreas Dr Albert Scheifele Näger von Achten Gauthier Kern Scheuer
CEO CFO North America, NW Europe, Africa Central Europe Asia (Deputy Chairman) Mediterranean Central Asia Oceania
. Strategy and . Finance, Acc., . Purchasing . Environmental . Sales and Marketing . Heidelberg Development Controlling, Taxes . Competence Center Sustainability . Secondary Technology Center . Group HR . Insurance & CRM Materials (AGG und . Group Services cementitious Cement . Comm. & IR . IT RMC) (CO2, Fuels, Trading) materials . Legal . Shared Service . Compliance Center . Logistics . Internal Audit
Since 2005 with HC Since 2004 with HC Since 2007 with HC Since 1982 with HC Since 1983 with HC Since 1992 with HC
Extensive integration experience
Management Board with unique track record of delivering on financial and operational integration
Slide 25 – Acquisition of Italcementi – 28 July 2015 Leverage HC’s proven value creation track record
Successful Hanson Integration integration and unique excellence organisational structure
Timely implemented and Operational executed programs leading to excellence Significant potential visible margin improvements for improved results and enhanced value from Italcementi’s Sales excellence and Commercial improved top line result assets excellence across all business lines
Clear success in working Financial capital management and excellence financial discipline
Slide 26 – Acquisition of Italcementi – 28 July 2015 Significant potential to reduce working capital days
Working Capital (days) 86 Italcementi HC
74 21 days 72 73 69 68
65
55 52 33 days 46
39 35 2009 2010 2011 2012 2013 2014
Considering HC’s past performance, further working capital savings expected
Slide 27 – Acquisition of Italcementi – 28 July 2015 Benefit from state of the art R&D capabilities
Easycrete® Optimisation of production processes Powercrete®
Chronocrete® CemFlow New products with innovative functionalities
i.design Customer oriented solutions i.active i.drain i.light i.clime Innovative binder concepts
Research capabilities will be consolidated after performance review
Slide 28 – Acquisition of Italcementi – 28 July 2015 Contents
Page 1. Italcementi overview 4
2. Transaction and timeline 14
3. Combination and its merits 18
4. Financials and value creation 29
5. Conclusion 39
Slide 29 – Acquisition of Italcementi – 28 July 2015 Financial rationale Fair multiple on earnings potential
Further value drivers not reflected Implied multiple assumptions in the transaction multiple Purchase of 45% in cash and €bn 1.7 share deal Additional value creation from disciplined management of the Tender offer for free float €bn 2.0 modern asset base Total equity value €bn 3.7 Local brands with strong Net debt €bn 2.2 customer base, especially in Net balance of minorities, emerging markets €bn 0.8 pensions & associates Enterprise value €bn 6.7 Fully deployed IT platform and innovation / technical 2015E EBITDA + ca. €m 850 solutions centre full run rate synergies
= 7.9x EV/EBITDA transaction multiple
Slide 30 – Acquisition of Italcementi – 28 July 2015 Financial rationale High quality assets in attractive markets at a fair price
Illustrative analysis Replacement cost Implied Italcementi (in €bn) valuation (in €bn)
Cement 11.4 Cement 5.4
US$/t of US$/t of 53% cement ~US$178/t cement ~US$85/t discount capacity capacity
Ready-mix 0.7 Ready-mix 0.7
Aggregates 0.6 Aggregates 0.6
Enterprise Enterprise 12.7 6.7 value value Implied equity Offer equity 62% 9.7 3.7 value value discount
Attractive purchase price paid based on replacement cost analysis
Slide 31 – Acquisition of Italcementi – 28 July 2015 Financial rationale Transaction financing secured – clearly defined refinancing plan
Transaction initially financed through cash and fully underwritten debt guaranteed for up to 36 months
€bn 0.8 cash savings until Dec 2016, driven by CapEx and working capital savings
€bn 1.0 from the sale of non-core assets Proforma leverage of and possibly assets in overlapping < 2.5x by end of 2016 geographies
Issuance of up to 10.5 million new shares to Announced dividend Italmobiliare target and strategy remain unchanged
Bond issuances to cover the remaining debt
Slide 32 – Acquisition of Italcementi – 28 July 2015 Effect on Net Debt Proforma ratios post closing consistent with current credit metrics
In €bn
2.5x ~2.2x 2.2 11.5 0.8 1.0 1.0 3.7 0.8 8.0 6.9 1.3 5.7
HC 2014A Building HC 2014 Net Italcementi Italcementi Proforma Equity Deleveraging Disposals Reduced Net debt Net debt Products debt pre- equity value Net financial Net debt issued from free CapEx & post- disposal transaction position post- to seller cashflow Working disposal transaction Capital (2016E)
Net debt/ EBITDA
Notes: Possible mandatory public offers for minorities are not reflected in the figures as the process will continue until the end of the transaction. Numbers may not add up due to rounding differences
Slide 33 – Acquisition of Italcementi – 28 July 2015 Proforma combined Group EBITDA
In €bn
0.8 0.1 3.7 -0.1 0.6 2.9
2.3
HC EBITDA Italcementi Total Combined Operational Realised Anticipated 2016E proforma 2014 EBITDA 2014 EBITDA 2014 development synergies by 2016 divestments EBITDA 2015/2016
Slide 34 – Acquisition of Italcementi – 28 July 2015 Further potential for portfolio management Footprint of > 60 countries allows for a more active portfolio management
Increase presence in Divest market positions markets with growth and/or with diminishing potential to value creation potential generate ROIC
Slide 35 – Acquisition of Italcementi – 28 July 2015 Balancing growth and shareholder return
Progressive dividend €bn > 3.2 (2) Progressive dividend €bn > 3.8 (3) FCF generation(1) €bn ~8.8 €bn ~10.9 Return capital to shareholders
Deleveraging €bn ~1.0 €bn ~1.3 Potential share buy-back
Growth CapEx €bn ~2.5 €bn ~2.0
Italcementi M&A €bn 0 €bn ~1.9 (4) Available cash €bn ~2.0 €bn ~2.0 Leverage: 0.6 X 0.9 X
Standalone Combined Disciplined M&A Note: 5 year cumulative figures (2015-2019) 1) Excluding proceeds from BP disposal but includes proceeds from envisaged disposal as a results of the transaction 2) Includes minority dividends of €bn 1.2 3) Includes minority dividends of €bn 1.6 4) Based on equity consideration of €bn 3.7 less proceeds from disposal and the capital increase Slide 36 – Acquisition of Italcementi – 28 July 2015 Focus on maximising returns
ROIC exceeding WACC by end of 2016
Reaching 40% – 45% pay-out ratio by 2019
Expected to be EPS accretive in first full fiscal year after closing
Deleveraging to achieve Investment Grade ratings
Accelerating achievement of HC’s mid-term targets
Slide 37 – Acquisition of Italcementi – 28 July 2015 Delivering attractive returns to shareholders Maintaining long-term dividend payout target
Standalone Combined 2019 2019
Revenues €bn > 17 €bn > 20
EBITDA €bn > 4 €bn > 5
ROIC > 10% > 10%
Leverage 1.5x – 2.5x 1.5x – 2.5x
EPS € ~10 € ~11
Payout Ratio 40% – 45% 40% – 45%
Slide 38 – Acquisition of Italcementi – 28 July 2015 Contents
Page 1. Italcementi overview 4
2. Transaction and timeline 14
3. Combination and its merits 18
4. Financials and value creation 29
5. Conclusion 39
Slide 39 – Acquisition of Italcementi – 28 July 2015 Conclusion
Unique opportunity to accelerate growth Acquiring high quality assets with and achievement of mid-term goals excellent geographical fit
Significant value creation potential Right time for transaction to capitalise on through synergies and operational recovery in key markets efficiency
Fully aligned with announced strategy of accelerated growth and increased shareholder returns
Slide 40 – Acquisition of Italcementi – 28 July 2015