Lafarge aims to cut costs, to reduce debt

LAFARGE, the world’s biggest cement maker, has unveiled plans to cut costs by €1,3bn and boost profits over the next four years as it seeks to slash its debt pile and regain an investmentgrade rating.

Lafarge wants to bring its net debt below €10bn as early as possible next year, down from €12,4bn at the end of March, it said yesterday.

The company has been cutting costs and selling assets in an effort to offset stagnating construction markets hit by the economic slowdown.

It has also cut its dividend in half for last year.

The group is now targeting savings of at least €400m this year and at least €350m next year, and plans to shun major acquisitions in the period to 2015 and tighten the reins on capital expenditure.

“After several years of geographic expansion, reshaping the group’s businesses, Lafarge is starting a new stage in its development that will allow it to fully extract the value of its assets by focusing on its existing assets,” CE Bruno Lafont said ahead of an analysts’ day.

Lafarge would again find “room for manoeuvre in terms of dividend growth and the resumption of investments” once its financial structure was stabilised, he said.

Lafarge expects earnings before interest, tax, depreciation and amortisation (ebitda) to improve by at least €450mover the four years of its new strategic plan through sales growth and higher margins, helping ebitda rise by €1,75bn overall by 2015.

The company sees continuing growth in demand for cement, driven mainly by emerging markets, and like German peer HeidelbergCement and Mexico’s Cemex it is raising prices to cover the growing cost of the energy needed to produce cement.

Lafarge said it wanted to achieve a ratio of cash flow from operations to net debt of 28%30% no later than 2015, when it also expects to reach a return on capital employed after tax of more than 8%.

The company’s debt, inflated by the purchase of Egypt’s Orascom in 2008, was downgraded to junk status last year by rating agencies Standard & Poor’s and Moody’s.

Lafarge hopes its cash flow to debt ratio target will enable it to have a BBB investmentgrade rating from Standard & Poor’s and Fitch, which yesterday confirmed its BB+ rating for the group. Reuters