Lafarge Plans 54% Earnings Boost by 2015 on Debt Strategy
Lafarge SA (LG), the world’s largest cement maker, plans to boost earnings 54 percent by 2015 with new products and spending reductions as the company works to reduce debt before raising dividend payments.
The 1.75 billion-euro ($2.2 billion) increase in earnings before interest, taxes, depreciation and amortization includes 1.3 billion euros in cost cuts over the period, the Paris-based company said in a statement today. Lafarge plans to scale back debt to less than 10 billion euros “as soon as possible” in 2013 from 12 billion euros at the end of 2011.
“Results and cash flow are oriented toward debt reduction in priority,” Chief Executive Officer Bruno Lafont told journalists in Paris today. “Once our financial structure is stabilized, we will recoup margins of maneuver for an increase in dividend and a resumption in investment.” He declined to say whether Lafarge will raise the payout as early as next year.
Higher raw material prices and slumping demand for construction products in cash-strapped southern European nations have prompted Lafont to cut spending as he seeks to repair a credit rating that has fallen below investment grade. Ebitda fell 8 percent to 3.22 billion euros in 2011, and Lafarge cut its dividend in half for a second year in a row.
Holcim Ltd. (HOLN), the world’s second-largest cement company, presented a plan last month to boost earnings by $1.6 billion by the end of 2014, mainly by streamlining purchases and logistics and putting assets up for sale.
Lafarge rose as much as 3.2 percent to 31.63 euros and was trading 1.6 percent higher at 12:36 p.m. in Paris. The stock has gained 15 percent this year, valuing the company at 8.94 billion euros.
The cement maker’s strategy “confirms our base-case scenario, i.e. that the company could return to an investment grade early in 2015, but not before,” Caroline Brugere, an analyst at Credit Agricole in Paris, said in a research note.
Standard & Poor’s and Moody’s Investors Service cut the company’s credit rating to junk status in 2011 as its financial ratios deteriorated after global industry growth slowed just as Lafarge was integrating Orascom’s cement operations, which it bought in 2008 for $15 billion.
Lafarge plans to increase its ratio of cash from operations to net debt to 28 percent or more no later than in 2015 from 13 percent last year, the company said today.
The French cement maker, which reduced debt by 2 billion euros to 12 billion euros last year, will sell at least 1 billion euros of assets this year, shrink capital expenditure by 400 million euros, and reduce costs by 400 million euros, Lafont said today. He reiterated Lafarge’s forecasts for 2012.
Lafarge will cuts costs by another 350 million euros in 2013 by streamlining back-office operations, making logistics and plants more efficient and reducing energy use, Lafont said.
Increased sales of new products with higher margins, development of recycling services and licensing and other actions to lift revenue will boost Ebitda by 450 million euros by 2015, the company said.
“We will reinforce our positions without needing to make a large acquisition,” and Lafarge will favor extending existing plants rather than building new facilities, the CEO said. “We now have a very good portfolio” of business, with 57 percent of revenue coming from emerging markets.
Lafarge can reach 2015 targets “even in an environment that wouldn’t be better than today,” Lafont said. Lafarge’s operations in Greece aren’t in a “catastrophic” situation, as the company is cutting costs, choosing customers more selectively, managing bills more stringently and developing exports.
Lafarge may proceed with sales of assets in the U.K. in coming weeks to gain regulatory approval for the merger of its local operations with Anglo American Plc (AAL)’s British quarries and aggregate plants, Lafont said.
To contact the reporter on this story: Francois de Beaupuy in Paris at email@example.com