Lafarge meets debt reduction target, net profit falls

Lafarge reported a 28 per cent decline in net profit in 2011 reflecting write-offs mainly in Greece, while sales rose three per cent. For 2012, the group sees cement demand edging higher and has pledged to continue slashing debt.

Current operating income grew three per cent in the fourth quarter to €538m from higher sales volumes, higher pricing, and cost cutting measures. For the year, higher cost inflation and the negative impact of foreign exchange lowered overall results.  Net profit in 2011 declined to €593m, reflecting a non-cash goodwill write-off of €285m, mainly in Greece and operating income was down nine per cent to €2179m.

The group successfully achieved its €2bn net debt reduction target and the strategic divestment of gypsum assets generated a net gain of €466m. Debt at the end of 2011 was €11.97bn, down 14 per cent from €14bn in the previous year, but slightly higher than JP Morgan’s forecast of €11,821m. The ration of year-end net debt to EBITDA was 3.7 times.

Cost savings accelerated at the end of 2011, with €100m delivered in the fourth quarter achieving €250m for the full year, well above the €200m target. As part of the announced program to reduce costs by €500m, the Group plans to reach at least €400m of savings in 2012.

Lafarge is planning to further reduce its capital expenditure this year from €1054m in 2011 to €800m this year. It is also planning “more than” €1bn of divestments in 2012. It received €2.2bn of cash from divestments in 2011.

Bruno Lafont, chairman and CEO of Lafarge, said: “In 2011 the Group met its debt reduction target of €2bn despite a very challenging environment. Additional debt reduction will come in 2012 as the Group maximises its operational cash flows. We will drive a €500m cost reduction program, implement price actions as a response to cost inflation, further reduce capital expenditures to €800m, execute strategic divestments of more than €1bn, and propose a reduction of the dividend to 50 cents per share.

Further to the divestment of a majority of the gypsum assets and the fundamental changes to the management structure, the group has fully refocused on its core businesses of cement, aggregates and concrete. "This strategic shift will accelerate growth and innovation,” Lafarge said in a statement.

Group sales were up three per cent in 2011 to €15,284m. Cement sales increased 6% in the fourth quarter and increased 3% for the year reflecting volume improvements in emerging markets and favourable weather in the last quarter, partially offset by the negative impact of foreign exchange.  Volumes increased 6% in the quarter (up 5% like for like) and 7% for the year (up 5% like for like), with growth driven by emerging markets. Pricing moved 1% higher in the quarter versus last year and was stable for the year.

Turning to its outlook, the group said sees cement demand moving higher and estimates market growth of between 1-4 per cent in 2012 versus 2011. This is in line with JP Morgan estimates of +2%, however, Lafarge is assuming a reduction of between 5% and 8% in Western Europe, which is worse than JP Morgan are currently forecasting. It expects 12-15% declines in both Greece and Spain. Lafarge said emerging markets are the main driver of demand growth and Lafarge benefits from its well balanced geographic spread of high quality assets. “We expect higher pricing for the year and that cost inflation will increase at a lower rate than in 2011,” the group added.