October 4, 2013 / 11:12 AM / 4 years ago

HeidelbergCement CEO faces up to lower growth world

HEIDELBERG, Germany (Reuters) - HeidelbergCement (HEIG.DE) Chief Executive Bernd Scheifele is facing up to the new reality of a lower growth world, where the priorities are to keep a tight hold on cash for rainy days and not splurge on big acquisitions.

Scheifele said the best recipe for companies to survive in the current uncertain economic environment was to focus on steady organic growth.

“We have to learn to live with low leverage, with less debt. And that also means with less growth,” Scheifele, who has had the top job at the company since 2005, told Reuters in an interview at the company’s headquarters.

Since the financial crisis, global cement makers like HeidelbergCement, France’s Lafarge LAFP.PA and Switzerland’s Holcim HOLN.VX have had to deal with a construction downturn in mature markets that has hit profits and returns.

In such troubled times Scheifele adopted a much more cautious approach, cutting debt and selling assets.

“Then if things go ‘bang’ in the EU and Greece leaves the euro, or not, then we can just batten down the hatches and say, ‘we’ll wait until the rain stops’,” said Scheifele, 55, a southern German known for being outspoken.

That means that HeidelbergCement, the world’s fifth-biggest cement maker, will stay away from major acquisitions for now.

“I believe we will continue to see a phase of high market volatility and uncertainty,” said Scheifele, a lawyer by training.

He oversaw the company’s last big takeover in 2007, when it bought Britain’s Hanson Plc to become the global market leader in aggregates, rock fragments essential for concrete production.

The acquisition boosted its annual revenue by two thirds and saddled it with debt of 14 billion euros ($19 billion), just over a year before the 2008 collapse of Lehman Brothers.


By the end of last year, HeidelbergCement had more than halved its debts by selling some assets, raising fresh capital, cutting around 20 percent of its workforce, limiting capital investments and keeping dividend payments low.

Its rivals have also taken a more cautious approach, refraining from big deals. In August, Holcim announced plans to exchange some assets and combine others with Mexican rival Cemex (CMXCPO.MX)(CX.N) in Europe.

HeidelbergCement aims to sell its Building Products business, which makes goods such as bricks and has about 1 billion euros in annual sales.

Scheifele said he was planning a “dual track” divestment process, in which companies pursue both a sale and a stock market flotation in parallel to keep their options open.

“We’ll see whether there is a good window of opportunity in 2014 so we can at least get a deal for part of it,” he said.

    Scheifele said he still expects 2013 sales to exceed last year’s level of 14 billion euros and a “noticeable” increase in net profit above 2012’s 545 million euros.

    If exchange rates remain at last month’s levels, this year’s earnings will be weighed down by negative currency effects of about 100 million euros, Scheifele said.

    He said volume sales were good in the third quarter as demand picked up in Britain, lifted by the country’s “Help to Buy” housing programme, and recovery in the United States continued. Weaker markets in Poland, Ukraine and India meanwhile started to stabilize. HeidelbergCement’s biggest markets are the United States, Indonesia and Britain.

    Longer term, HeidelbergCement aims to expand in emerging countries via organic growth or smaller acquisitions.

    It is banking especially on growing cement consumption in emerging markets such as Ghana, Tanzania, India or Indonesia.

    But Scheifele said he would not announce any ambitious growth targets for the coming years. “The times are over in which managers announced big five-year-plans,” he said.

    HeidelbergCement merely has a mid-cycle target of raising operating earnings before interest, tax, depreciation and amortization (EBITDA) to 3 billion euros from a low of 2.1 billion in 2009 but has not said when it will reach that goal.

    Scheifele said it would not be next year. “If the economy goes well, we might come near it in 2015 or 2016.”

    Editing by Jane Merriman

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