Lafarge 3Q net profit falls, launches 2012 cost-reduction plan

Lafarge 3Q net profit falls, launches 2012 cost-reduction plan
Published: 04 November 2011

Lafarge SA Friday announced a EUR500m cost-reduction plan for next year after third quarter net profit fell despite an increase of sales revenue.

Lafarge said its third-quarter net income fell 10% on-year to EUR336m, while its sales rose 1% to EUR4.21bn.
Despite the Group’s cost reduction program, higher cost inflation and foreign exchange weighed on results and margins.

Current operating income fell 9% to EUR750m but was EUR37m above the consensus and EUR41m above estimates by Jefferies of EUR709m.  Lafarge exceeded Jefferies estimates by EUR11m in cement, by EUR15m in aggregates and concrete and “Others” was EUR15m better than the house had forecast.

The Group achieved EUR50m of structural cost savings in the quarter and EUR150m year-to-date, on pace with the EUR200m full-year target.

"In the current economic environment, the Group continues to be proactive and already secured over EUR2bn of divestments as part of its actions to reduce debt. These efforts will continue and today the Group is announcing a new EUR500m cost reduction program. These measures, including price actions in response to a high cost environment, are part of ongoing steps to strengthen profitability, reduce debt and maintain strong liquidity," the company’s Chief Executive Bruno Lafont said in a statement.

Sales increased one per cent in the quarter (up 5% like for like) and increased two per cent year-to-date (up three per cent like-for-like), reflecting volume improvements in emerging markets partially offset by the negative impact of foreign exchange.

Volumes increased six per cent in the quarter (up five per cent like-for-like) and seven per cent year-to-date (up five per cent like-for-like), with growth driven by emerging markets.

Pricing moved marginally higher in the third quarter versus last year while slightly down on a year-to-date basis.

Lafarge sees cement demand will rise and maintains its estimate of market growth of between 2% and 5% per cent in 2011 versus 2010. Emerging markets continue to be the main driver of demand and growth and Lafarge benefits from its well balanced geographic spread of its assets.

The company said its capital expenditures for 2012 won’t surpass EUR1bn for this year.

As of September 30, 2011, the Group had €4bn in committed credit lines, of which €1bn was drawn, with an average maturity of 2.5 years in addition to €2bn of cash on hand.