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Lafarge Unveils New Cost Cutting Program as Profit Drops

Lafarge SA (LG), the world’s second-biggest cement maker, unveiled a new plan to slash costs after third-quarter profit dropped more than analysts estimated.

Earnings before interest, taxes, depreciation and amortization fell 6 percent to 1.01 billion euros ($1.4 billion), the Paris-based company said in a statement today. Analysts polled by Bloomberg had estimated 1.06 billion euros. Lafarge reiterated its cost cutting targets for 2013 and 2014 and set a new goal to boost earnings in 2015 and 2016 by 1.1 billion euros, consisting of 600 million euros in expenditure reductions and 500 million euros through “innovation.”

Chief Executive Officer Bruno Lafont is cutting costs, pushing sales of higher-margin services and selling assets to repair a credit rating that has fallen one level below investment grade amid a slump in European construction, rising energy prices and political turmoil in the Middle East.

“Looking ahead, we’ll benefit from three organic growth drivers: continuing growth in emerging countries, accelerating growth through innovation and progressive recovery in mature markets,” the CEO said in the statement. “All our measures strive towards growth in sales, cash flows and returns and our priority is to create sustainable value for our shareholders.”

Lafarge reiterated a forecast for the cement business to grow as much as 3 percent this year in the markets where the company operates. “This implies better trends in the second half compared to the first half as market recovery is becoming evident in the U.S., growth in most emerging markets continues and Europe is showing stabilization at a low level,” the company said.

Cutting Debt

Lafarge’s net debt shrank to 10.9 billion euros at the end of September, a reduction of 1.3 billion euros compared to the same period last year. The company reiterated a goal to reduce borrowings to below 10 billion euros this year, and to less than 9 billion euros in 2014, to regain an investment grade as soon as possible.

Holcim Ltd. (HOLN), the world’s largest cement maker, yesterday lowered its 2013 sales forecast because of disappointing shipments in India, Mexico and Canada. Sales won’t match last year’s level given weakening demand for construction materials in key markets, the Swiss company said.

To contact the reporter on this story: Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net

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