Lafarge EBITDA up EUR52m in 1H15
Lafarge's cement volumes for the second quarter of 2015 were down three per cent due to a fall in export sales as the two per cent volume rise in domestic markets could not entirely offset the decline overseas. Volumes were supported by continuing positive trends in many markets such as Romania, the Philippines, Egypt or Canada while adverse weather limited growth in the United States. There was also ramp-up of new capacities in Rajasthan (India) and Russia to offset the impact of subdued markets in France and Brazil as well as continuing challenging conditions in Iraq and Syria.
EBITDA was up one per cent in 2Q15, supported by favourable exchange rates (EUR52m or +6 per cent) that more than offset the impact of divested businesses (EUR-25m or -3 per cent). At constant scope and exchange rates, EBITDA was down two per cent, reflecting lower volumes and the effect of moderate on-going cost inflation and price adjustments in a limited number of countries. These impacts mitigated the positive effect of cost-cutting and innovation measures which generated EUR60m and EUR65m, respectively during the quarter. In 1H15 these measures contributed EUR250m.
Overall the group continues to see cement demand increasing for the full year. Taking into account volumes trends observed in the first half of the year, the group now estimate market growth of between 1-4 per cent in 2015 compared to 2014.
Group EBITDA margin was slightly down (-50 basis points) in the quarter but rose 50 basis points for the first half-year. This reflects mainly the company’s cost reduction and innovation actions that more than offset the impact of on-going cost inflation and lower volumes, said Lafarge. Cement prices were overall down 0.5 per cent compared to 2Q14 but increased 0.5 per cent compared to 1Q15.
Market overview
Some markets faced challenging economic or political environments. This was notably the case in France, where the construction sector remains subdued, in Brazil that faces a very challenging overall environment, in Iraq where difficulties to transport cement across the country prevail since June last year and in war-torn Syria.
Aggregates volumes were up one per cent in the second quarter, as positive trends in North America more than offset the subdued market in France. Ready-mix volumes were down four per cent, mainly reflecting lower activity in France, Poland and Brazil.
Despite a limited growth in the US due to wet weather, North America posted another quarter of sustained growth, supported by higher volumes in Canada, positive pricing trends in the US as well as cost reduction and innovation actions.
Western Europe suffered from the soft activity in France that also faced a demanding comparable in 2Q14, while Spain showed slow-paced recovery signs. In Greece the growing uncertainty around the economic outlook had not impacted the market yet and volumes grew in the quarter. Latin America, which now only includes Brazil, suffered from the challenging economic and competitive environment that currently prevails in the country.
The Middle East and Africa showed a strong performance with most countries being positively oriented.
Finally, Asia was affected by continuing cost inflation and lower prices overall. This was mitigated by solid volume trends in the Philippines and the results from the company's cost-cutting and innovation programme.
Meanwhile, net result from joint ventures and associates were stable in the quarter at EUR41m, as solid improvements in joint ventures in Nigeria and in the UK were mitigated by more difficult market conditions in China.
Consolidated sales were stable in the second quarter at constant scope and exchange rates. Exchange rates continued to be favourable (positive impact on sales of EUR249m or eight per cent in 2Q15) while the impact of divestments, notably in Ecuador, Russia and Pakistan, reduced sales by three per cent in the quarter (EUR-75m).
Net income and debt
Adjusted net income group share for 1H15 is up 57 per cent or EUR66m when excluding one-off items mostly recorded in the second quarter. These one-off items notably include EUR450m of impairment on some of the assets to be divested to CRH in 3Q15. Adjusted net income group share in 2Q15 decreased 11 per cent or EUR27m, as the effect of lower net financial charges was offset by higher tax provisions.
Net debt stands at EUR10.3bn, reflecting the usual seasonality in cash flow and the earlier payment of dividend compared to past practice as part of the completion of the merger. Cash flow from operations before merger costs benefitted from the reduction in cash financial expenses in the second quarter and rose 17 per cent to EUR355m. Net debt increased by a moderate EUR149m relative to end of 2Q14, despite the impact of paying the dividend of Lafarge SA (EUR36m) in early May ahead of the launch of the exchange offer to complete our merger with Holcim, rather than in July, as per past practice. It moved higher compared to year-end 2014 due to normal seasonal working capital needs.
Divestments
Lafarge received EUR232m in cash for divestments in the quarter, mainly reflecting the proceeds for our operations in Pakistan. Investments totalled EUR262m for the quarter. Sustaining capital expenditures remained limited, at EUR82m vs EUR67m in 2Q14.
Development investments amounted to EUR180m in the second quarter of 2015. These mainly related to the company's projects in North America (Exshaw in Canada and Ravena in the US) and Algeria as well as a few debottlenecking projects, notably in the Philippines.
