Lafarge takes hit on Greek impairment charge, maintains outlook

Lafarge has reported improved second-quarter sales and operating profit but net profit plummeted as it took an impairment charge of EUR200m (US$244m) on its Greek assets.

Second-quarter sales rose five per cent to EUR4261m and EBITDA increased eight per cent to EUR1007m. Net income in 2Q was only EUR57m due mainly to the Greek impairment charge.

For the first-half sales increased by five per cent to EUR7614m and EBITDA eight per cent to € 1523m while net profit was  EUR13m down from EUR260m in the same period a year earlier. In addition to the impairment on Greek assets, Lafarge also recorded a EUR148m charge related to the company restructuring in the first half of the year.

"Economic conditions remain challenging for many parts of the world and we remain prudent on our outlook. But even in a lower growth volume environment, our actions to generate sales growth and cash, and to improve returns, led to a third consecutive quarter of positive trends," said Lafarge's Chief Executive Bruno Lafont, in a statement accompanying the company's earnings.

He confirmed he expects the cement industry to grow between 1% and 4% in 2012, but the mix has changed to reflect difficult conditions in Europe (mainly France, Spain, Greece and Poland) and much better conditions in US and other emerging markets. Lafarge has also indicated that price increases seem to be gaining traction as it is seeing an overall four per cent improvement.

While encouraged by a better performance in US and emerging markets, JP Morgan remains concerned on the outlook for Lafarge’s Middle East operations given volatile demand over the last year and an uncertain outlook. Demand in Asia and Latin America tracked JP Morgan’s expectation and margins showed slight improvements.

Lafarge has reiterated its targets to secure at least EUR1bn of divestments this year and cut net debt to less than EUR10bn as soon as possible in 2013. The group made EUR72m from divestments in the first half of the year. It achieved €170m of cost savings in the first-half, €100m in the second quarter, and is on track to reach at least €400m for the year. Net debt at the end of June shrunk by EUR1.7bn compared with a year ago to EUR12.5bn.