Lafarge trims market growth outlook, debt reduction goal on track

Lafarge reported a marked rise in 2Q net profit although consolidated sales declined. The company has now trimmed its forecast for cement market growth this year but confirmed its goal to reduce debt to below EUR10bn this year. 

EBITDA fell eight per cent to EUR922m and current operating income declined 11 per cent to EUR667m. Net profit in the second quarter came in at EUR201m compared to EUR39m in the same period last year when earnings were hit by exceptional items.

Consolidated sales, which were affected by adverse foreign exchange, declined three per cent to EUR4.11bn as growth in emerging markets only partly offset weak mature markets in North America and Western Europe. At a constant scope and exchange rates, sales were stable as increased prices across all Lafarge’s product lines to address cost inflation offset the impact of lower volumes, the group noted.

“Our results in the second quarter resisted in an environment which was marked by a conjunction of unfavourable circumstances. We increased prices and performance and innovation results are in line with our 2013 EUR650m additional EBITDA target,” Bruno Lafont, chairman and CEO of Lafarge said.

Market growth outlook reduced

The decline is second quarter sales volumes was  affected by a high comparable 2012, Lafarge noted, as well as continuing adverse weather. Temporary fuel shortages in Egypt also put some pressure on volumes.

The group now says it is expecting growth of between 0-3 per cent this year, instead of between 1-4 per cent previously estimated. The revised forecast reflects bad weather conditions in the period but also implies a more positive trends in the second half of the year, Mr Lafont said. Emerging markets continue to be the main driver of demand.

Investments and divestments

During the second quarter Lafarge received EUR49m in cash for divestments. With the most recent divestments announced, the group has secured EUR1.5bn of divestments since 1 January 2012, of which EUR655m have been received to-date. The remainder will contribute to further debt reduction in 2013, Lafarge stated, as it continues to pursue further divestments through the year.

Meanwhile investments for the quarter totalled EUR230m including development investments for ongoing cement plant projects in Russia, India and its Exshaw and Ravena plants in North America.

Debt reduction

Net debt as at the end of June stood at  EUR11.88bn, a reduction of EUR700m compared with a year earlier, reflecting the strict control of investments and working capital optimisation which supported the 35 per cent free cash flow increase in the quarter, the company said.

Lafarge has been selling assets and cutting costs to reduce its debt pile and regain its investment grade status.

The company has confirmed its goal to shrink debt below EUR10bn this year and said it would aim to cut it further below EUR9bn in 2014 through further asset disposals and cost savings, Lafont noted.