In a recently-released flash report, analysts a CM-CIC Securities reports that it expects a 70bp drop in operating margin for Lafarge’s in first-half 2011 to 12.1%. The figure was hurt by the rise in factor costs not being fully passed on to clients.
CM-CIC forecast operating income of EUR962m vs EUR1072m in H1-2010 with only the gypsum division seeing a substantial rise in its contribution, from EUR34m to EUR50m.
It is revising down its FY estimates for 2011-2013. For volumes, it still assumes stability on the relevant construction market overall, but with no recovery in 2012 in Europe and North America. The prudent assumption is still for a loss from US gypsum in 2012 (-EUR44m vs. our previous forecast for profit of EUR9m). CM-CIC now have a harsher scenario for selling prices given the surplus capacity and greater-than-expected competition. Overall, CM-CIC are expecting adjusted net earnings of EUR824m for 2011 (vs its previous estimate of EUR866) and EUR973m in 2012 (vs. EUR1036m previously).
That said, the process of reducing debt is well underway. CM-CIC’s calculations suggest a drop a shade higher than EUR2bn for the period running from end-2010 to 2013. This does not factor in the disposal of the Gypsum business in France. Selling the Gypsum business in France, Europe and Latam would take the all-important FFO/net debt ratio to 17.1% in 2012 (with a numerator of EUR1997m, still marked by the crisis).