Lafarge Lines Up More Assets for Disposal as Profit DeclinesFrancois de Beaupuy
Lafarge SA, the world’s biggest cement maker, said it will sell more assets to cut debt after a deterioration in European demand and poor weather for construction cut second-quarter profit.
The French company said it’s looking for additional proceeds to reduce borrowings to below 10 billion euros ($13 billion) this year, and then to less than 9 billion euros in 2014, to regain an investment grade as soon as possible. The shares rose as much as 3.8 percent after Lafarge said it expects earnings and sales to improve in the rest of this year.
Weakened building demand in Europe is putting the emphasis on self-help measures. Chief Executive Officer Bruno Lafont is cutting costs, pushing sales of higher-margin services and products and selling assets to repair a credit rating that has fallen one level below investment grade. Second-quarter earnings before interest, taxes, depreciation and amortization fell 8 percent from a year earlier to 922 million euros, short of the 937 million euros that analysts estimated, on average.
“In an economic environment which remains challenging, notably in Europe, our results in the second quarter remained resilient, although impacted by a combination of particularly wet weather in North America and an adverse impact of foreign exchange,” Chief Financial Officer Jean-Jacques Gauthier said on a conference call. “We expect a much better second half” than the first half in terms of volumes, sales and Ebitda.
Lafarge shares were up 2.4 percent at 50.47 euros at 1:06 p.m. in Paris, giving the company a market value of 14.5 billion euros. The shares have risen 4.6 percent this year, compared with a 1.2 percent gain for Swiss rival Holcim Ltd. and a 21 percent gain for Germany’s HeidelbergCement AG.
Lafarge also faced a temporary fuel shortage in Egypt, cement imports that hurt prices in Nigeria and Iraq, and a lack of carbon credit sales, which may remain “very low” for the full year, the CFO said.
Lafarge said it expects cement demand growth in its markets this year to be in the range of zero to 3 percent, down from a previous range of 1 percent to 4 percent.
The company’s debt shrank by 5 percent at the end of the second quarter from a year earlier to 11.9 billion euros. It has announced 1.5 billion euros of asset sales since the start of 2012, of which 900 million euros will be received in the second half, it said.
The French cement maker is in talks to sell more assets and may cash in some of the extra proceeds this year, Gauthier said. Next year’s debt reduction will “primarily” come from cash flow improvement, he said, and the company will outline new cost cuts beyond 2014 and a “mid- to long-term” strategy when it releases third-quarter earnings in November.
The company is revamping cement plants in North America and investing in new facilities in Russia and India.
Lafarge reiterated a target to deliver 650 million euros of additional Ebitda from cost-cutting and innovation in 2013 in a bid to offset rising energy prices and lower sales of carbon credits.
Net income quintupled to 201 million euros in the second quarter from a year earlier when the company wrote down Greek assets, Lafarge said.
In January, Lafarge announced the sale of aggregates quarries in the U.S. for $160 million, and merged some U.K. assets with Anglo American’s Tarmac unit. Lafarge also agreed to sell a cement plant in Ukraine to CRH Plc for 96 million euros, and its North American gypsum unit for $700 million to Lone Star Funds in June.