Lecture 10 - 02.05.2023 (Rene Aldach)

Cement Industry, Carbon
Footprint Reduction and

Sustainable Finance
University of Mannheim | René Aldach | Chief Financial Officer

02.05.2023
Content
2 02.05.2023 Carbon Reduction Strategy | University of Mannheim | René Aldach

1
Who we are
Heidelberg Materials is one of the world's largest building materials producers
Leading global market position:

1 >293 Mt aggregates
2 >118 Mt cement
3 >45 Mm3 ready-mixed concrete
4 >8 Mt asphalt
Revenue Employees
> € 21 bn ca. 51,000
EBITDA Sites
> € 3.7 bn ca. 3,000

Who we are
Our history: From Heidelberg into the world
1873 1889 1977 1989 1993 1995/96 1999 2001 2005/06 2007 2015 2016 2021 2022
CBR Hanson
Central and Kazakhstan, Heidelberg

Eastern Europe India, Georgia Materials
Sale of West
Lehigh, USA Indocement Region USA
Indonesia
Listing on Frankfurt
Stock Exchange Scancem Italcementi
China, Sale of building materials
Foundation Turkey in North America and UK

Who we are
Our product portfolio is vertically integrated and serves different markets
Cement
Private Housing
Ready-Mixed Concrete
Residential Buildings
Aggregates Asphalt
Infrastructure

Who we are
Concrete: The most frequently used

building material—proven over more than
2,000 years
Advantages
- Long product life
- Locally produced and sold with limited
transport
- 100% recyclable
- Sound absorbent
- Fire resistant
- Customizable & flexible
Weaknesses
- CO2 intensive
- Energy intensive

Challenge CO2
Cement is a substantial ingredient of concrete and a major contributor to

global CO2 emissions
Concrete ingredients mix Share of global CO2 emissions
Admixtures
Air & Water
− Cement is one of
the key ingredients
of concrete
Cement 7% − Cement production

accounted for
about 7% of global
CO2 emissions in
2021
Aggregates
8 02.05.2023 Carbon Reduction Strategy | University of Mannheim | René Aldach Source: Global CO2 emissions from cement production, Andrew, R. (2022).
Challenge CO2
Cement production: Most carbon emissions originate during calcination process
~551kg CO2 / t cement

2/3 process emissions
1/3 fuel emissions
Cement
business line
Cyclone Supplementary
Cementitious Ad-
Heat materials mixtures
exchanger
Raw mill
Calciner
Construction
site
Quarry Cement mill 3
Sand & Gravel

Split & Crushed
Rock
Limestone, clay 1 Concrete
Fuels business line
Aggregate
business line
2
Sustainability strategy
Managing Board position for sustainability to drive the transformation forward
Chairman
Dr. Dominik von Achten
Chief Digital Officer Chief Sustainability Officer Chief Financial Officer

Dennis Lentz Dr. Nicola Kimm René Aldach
New Managing Board position New Managing Board position
since September 2021 since September 2021
Western and Southern Northern and Eastern Africa-Eastern

North America Asia-Pacific
Europe Europe-Central Asia Mediterranean Basin
Chris Ward Kevin Gluskie
Jon Morrish Ernest Jelito Hakan Gurdal

Sustainability Commitments 2030 - stronger and more comprehensive
Sector leading with the most Targeting zero fatalities and -

ambitious CO2 reduction 50% LTIFR (lost time incident
target for 2030 and carbon frequency rate)
capture at scale
Contributing to a nature
Offering circular alternatives
positive world with water
for 50% of our concrete
management plans and a
products by 2030, hence
comprehensive biodiversity
conserving natural resources
program

We will close the carbon and materials loop

We commit to generate 50% of our revenue from sustainable products by 2030
50
Reduce and reuse CO2
Less CO2 in cement and concrete
Sustainable
products Reuse and reduce materials
More circularity in the product mix
Commoditisation comes to an end:

Sustainable product portfolio will be THE key differentiator!

We set new benchmarks with our commitments for 2030
CO2-reduced cement Sustainable revenue Circular concrete

By 2030
400 kg/t 50% 50%

CEM
Cut our emissions by almost half Double our revenue Offer circular alternatives
– the lowest in the cement from low-carbon and circular for half of our concrete
industry. products and solutions to products
reach 50% of Group revenue. – aiming for full coverage.

By 2030, we want to reduce our CO2 emissions by almost 50% vs. 1990
kg CO2/t
CEM
800
- 47 %
750
Levers to reach our 2030 targets
700
Products
Optimise Clinker incorporation <68%
600 565 551 products
Optimise Drive circularity
process
500
CCUS Process
400 45% Alternative fuels rate
400
20% Biomass fuels rate
300 CCUS
10 mt CO2 captured by
0 2030 (cumulative)
1990 2021 2022 2030

The inevitable process emissions of clinker production require CCUS
Limeston 2/3 Process-related Clinker

COCO2
2 use
1/3 Fuel
CO storage Reduced by alternative
“Captured
e and utilised CO22
Cement
(CCU) Clinker
(CCS) fuels and more efficient use
(CCU)Limestone
or stored (CCS)” 2/3 Process- 1/3
related CO2 >95% Fuel SCM
of energy
Kiln CO2 Mill
Raw CO2
meal Carbon
Kiln Capture
(CC)
⅔ Process- ⅓ Fuel
related CO2 CO2
Kiln
⅔ of CO2 ⅓ of CO2
emissions from emissions from
limestone fuels

Significant carbon reduction through sector’s first CCS project already in 2024
2024 2025 2026 2028 2030
CCS CC CCUS CCUS CCS

Brevik, Norway Hanover, Germany Edmonton, Canada Padeswood, UK Slite, Sweden
Capacity: 400 kt CO2 p.a. LEILAC 1: finalised Capacity: 1.0 mt CO2 p.a. Capacity: 800 kt CO2 p.a. Capacity: 1.8 mt CO2 p.a.
LEILAC 2: engineering
Capacity: 100 kt CO2 p.a.
CCUS CCUS
CC CCU Devnya, Bulgaria Mitchell, Indiana, US
Mergelstetten, Germany Safi, Morocco Capacity: 800 kt CO2 p.a. Capacity: 2.0 mt CO2 p.a.
Oxyfuel pilot Upscaling capacity
CCS
CCUS
Eastern Europe
Antoing, Belgium
Capacity: 800 kt CO2 p.a. Two large scale CCS
projects
We are confident to deliver on our target of reducing CO2 emissions by 10 mt through CCUS by 2030
All dates estimated start of operations, timing dependent on various factors, incl. funding decision.

Brevik CCS, Norway
World's first industrial-scale carbon capture plant in

the cement industry
Schedule:
Start of carbon capture planned for 2024
400,000 tonnes
CO2 reduction p.a. (50% of plant’s total CO2
emission)
Link to video

Brevik CCS: Construction of first industrial-scale carbon capture and storage

plant in the cement industry

”
We will be the first
to offer Net Zero
cement and concrete
at scale.

We drive circularity to reduce and reuse

materials and natural resources.
• New acquisitions add to our portfolio of

recycled aggregates
• Our goal: closing the carbon loop
• 2022 awarded: Innovative concrete recycling

with ReConcrete 360°

Scaling circularity through several acquisitions of leading recycling companies
Building a platform of circular businesses with selective recycling acquisitions in key developed markets
Concrete and asphalt recycler with operating assets in the Greater Seattle area
Integrated recycling & earthmoving, AGG and RMC business in the east of UK
Concrete and civil engineering waste removal and recycling, Manchester
Leading integrated recycling and environmental services company in Berlin
Demolition and construction materials recycling business, based in Southern Germany

3
CO2 business case
The building materials industry will continue to grow
Market Dynamics Society Technology

• Population growth • Solutions for sustainable building • New business models:
and urbanisation in emerging markets • Circular economy models Digitalisation & automation
• Infrastructure programmes in • Regulation via CO2 taxes/ • Innovative and sustainable
mature markets, e.g. USA, EU Green emission caps building materials
Deal • Technologies for CO2 reduction

CO2 business case
The CO2 transition as a viable business case
Sustainable products will enable

above-market revenue growth.
Revenue
Premium for sustainable products and lower
carbon cost, thanks to technology leadership.
EU turns into advantage.
Margin
Strong cash-conversion:
New net CapEx p.a. target includes all CO2
measures needed to reach our target of
400 kg CO2/t CEM
Cash flow

CO2 business case
We are well-aware of the business impacts of the CO2 transition and have a
clear roadmap
Reduce clinker incorporation,

CapEx for defined CO2 increase alternative fuels − Improved energy cost efficiency
roadmap rate and other efficiency − Lower CO2 exposure
measures
CapEx
− First mover advantage
Capturing 10 mt CO2
CapEx for CCUS − Reduced ETS needs
by 2030
− Premium product offering
Operational costs for − Anticipated to be much lower than CO2

OpEx for CCUS capture, transport, and price
storage of CO2 − Margin opportunity
OpEx
Additional margin − Market consolidation, increased pricing
opportunity power
OpEx for EUA
as advantageous CO2 − Competitive differentiation as lower
position ETS needs

CO2 business case
CCUS turns into a competitive advantage in Europe
2022 2023 2024 2025 2026 2027 2028 2029 2030 − CBAM and -10% EUA reduction starting in 2026
will lead to an increasing shortfall in EUAs
− Pricing in the sector will move up reflecting the

average ETS balance
Annual ETS balance without conventional measures
Assumptions:
28 02.05.2023 Carbon Reduction Strategy | University of Mannheim | René Aldach (1) European commission reforms on ETS implemented, namely CBAM in 2026 and free allowances reduced by -10% p.a.
starting 2026
(2) ETS price assumptions 2023: €95 and increase of €5 p.a. after 2024
CO2 business case

average ETS balance
− CO2 cost avoidance due to conventional

measures: ETS balance 24% better by
2030
Annual ETS balance without conventional measures -24%

Annual ETS balance with conventional measures
Assumptions:
starting 2026
CO2 business case

average ETS balance
− CO2 cost avoidance due to conventional

measures: ETS balance 24% better by
2030
− CO2 footprint of HeidelbergCement

(10 mt captured via CCUS) leads to margin
opportunity
− Cumulative cost avoidance due to CCUS from

-21% 2025 to 2030 around €775 m
Annual ETS balance without conventional measures − Additional 21% lower ETS balance in 2030
due to CCUS represents material cost
Annual ETS balance with conventional measures -24%
advantage in the industry
Annual ETS balance after CCUS
Assumptions:
starting 2026
4
Sustainable financing
Our "Sustainability-Linked Financing Framework" aligns our sustainability

strategy with our financing measures
Sustainability-Linked Selection of Key Performance Indicators

Financing Framework
Specific net CO2 emissions per tonne of cementitious material
• Links our sustainability
goals with financing via Intermediate target Long-term target
defined key performance 576 576
indicators
500
400
• Provides guidelines for the
issuance of various
sustainability-related 2020 acceleration 2026 2020 acceleration 2030
financial instruments baseline target baseline target
• Externally reviewed and Tonnes CO2 emissions captured via CCUS

performance verification
≥ 10,000
on ongoing basis
• Aligned with EU Taxonomy

0 400
2020 … 2024 2025 2026 2027 2028 2029 2030

baseline

More than 70 % of our total financial instruments will be sustainable by 2025
Sustainable/green as % of total financial

✓ Placement of first sustainability-linked bond with an instruments
issue volume of € 750 m
• Interest is linked to the development of KPI 1 >70%
• Intermediate (2026) and long-term (2030) targets included
• Fixed annual interest of 3.75% which increases if targets are not
achieved 44%
✓ € 2 bn sustainability target commercial paper programme

• Interest top-up linked to the intermediate target of KPI 1 22%
• Design of an innovative financial donation mechanism,
receiver of any penalty payment is BirdLife Europe
✓ Sustainability-linked syndicated credit line in size of € 2 bn 2021 2022 Target 2025

• Credit margin is linked to the development of KPI 1

CO2 reduction targets anchored within the organization
CO2 included worldwide in the remuneration Detailed CO2 roadmap by CO2 as core criteria for
system for all employees entitled to a bonus plant and by country investment decisions
x &
CO2 reduction Financial
target target
Only if we achieve our climate targets the full bonus Ambitious CO2 reduction targets No investment without
can be achieved underpinned by a detailed consideration of the carbon
roadmap for each plant footprint

Sustainability reporting
Significant change in and prioritization of sustainability reporting
− Increased reporting requirements as part of the EU Taxonomy, including new CapEx and OpEx
categories
− Additional KPIs such as Sustainable Revenue
− Audit of CO2 data with reasonable assurance instead of limited assurance to implement same strict
processes and controls for sustainability data as for financial data
Heidelberg Materials Data Hub is the central reporting competence center for non-
financial data and paved the way for a fully integrated annual report 2022
− Standardization
− Automation
Data Hub − Efficiency enhancement
− Quality enhancement
Integrated sustainability reporting since financial year 2022!

Thank you.
What are your questions?

Lecture 10 - 02.05.2023 (Rene Aldach)

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Cement Industry, Carbon

Footprint Reduction and

University of Mannheim | René Aldach | Chief Financial Officer

2 02.05.2023 Carbon Reduction Strategy | University of Mannheim | René Aldach

Heidelberg Materials is one of the world's largest building materials producers

Leading global market position:

4 02.05.2023 Carbon Reduction Strategy | University of Mannheim | René Aldach

Our history: From Heidelberg into the world

Central and Kazakhstan, Heidelberg

5 02.05.2023 Carbon Reduction Strategy | University of Mannheim | René Aldach

Our product portfolio is vertically integrated and serves different markets

6 02.05.2023 Carbon Reduction Strategy | University of Mannheim | René Aldach

Concrete: The most frequently used

7 02.05.2023 Carbon Reduction Strategy | University of Mannheim | René Aldach

Cement is a substantial ingredient of concrete and a major contributor to

Concrete ingredients mix Share of global CO2 emissions

Cement 7% − Cement production

Cement production: Most carbon emissions originate during calcination process

~551kg CO2 / t cement

Sand & Gravel

Managing Board position for sustainability to drive the transformation forward

Chief Digital Officer Chief Sustainability Officer Chief Financial Officer

Western and Southern Northern and Eastern Africa-Eastern

11 02.05.2023 Carbon Reduction Strategy | University of Mannheim | René Aldach

Sustainability Commitments 2030 - stronger and more comprehensive

Sector leading with the most Targeting zero fatalities and -

12 02.05.2023 Carbon Reduction Strategy | University of Mannheim | René Aldach

We will close the carbon and materials loop

13 02.05.2023 Carbon Reduction Strategy | University of Mannheim | René Aldach

We commit to generate 50% of our revenue from sustainable products by 2030

Less CO2 in cement and concrete

More circularity in the product mix

Commoditisation comes to an end:

14 02.05.2023 Carbon Reduction Strategy | University of Mannheim | René Aldach

We set new benchmarks with our commitments for 2030

CO2-reduced cement Sustainable revenue Circular concrete

400 kg/t 50% 50%

15 02.05.2023 Carbon Reduction Strategy | University of Mannheim | René Aldach

16 02.05.2023 Carbon Reduction Strategy | University of Mannheim | René Aldach

The inevitable process emissions of clinker production require CCUS

Limeston 2/3 Process-related Clinker

17 02.05.2023 Carbon Reduction Strategy | University of Mannheim | René Aldach

2024 2025 2026 2028 2030

CCS CC CCUS CCUS CCS

18 02.05.2023 Carbon Reduction Strategy | University of Mannheim | René Aldach

Brevik CCS, Norway

World's first industrial-scale carbon capture plant in

19 02.05.2023 Carbon Reduction Strategy | University of Mannheim | René Aldach

Brevik CCS: Construction of first industrial-scale carbon capture and storage

20 02.05.2023 Carbon Reduction Strategy | University of Mannheim | René Aldach

21 02.05.2023 Carbon Reduction Strategy | University of Mannheim | René Aldach

We drive circularity to reduce and reuse

• New acquisitions add to our portfolio of

• Our goal: closing the carbon loop

• 2022 awarded: Innovative concrete recycling

22 02.05.2023 Carbon Reduction Strategy | University of Mannheim | René Aldach

Scaling circularity through several acquisitions of leading recycling companies

Concrete and civil engineering waste removal and recycling, Manchester

Leading integrated recycling and environmental services company in Berlin

Demolition and construction materials recycling business, based in Southern Germany

23 02.05.2023 Carbon Reduction Strategy | University of Mannheim | René Aldach

The building materials industry will continue to grow

Market Dynamics Society Technology