Lafarge Cement keeps savings, debt goals despite currency hit

French cement maker Lafarge stuck to its cost savings and debt reduction targets on Wednesday, betting on continued growth in emerging markets, a recovery in North America and stabilisation in Europe.

One of Lafarge plant

A strong euro and volatile currencies in emerging markets slashed nearly 6 percentage points off sales and profit growth last year, but the group said its geographic spread and solid underlying demand for cement, driven by urbanisation, would help counterbalance that impact this year.
According to MSCI data, Lafarge is the French blue-chip company with the highest exposure to emerging markets. These account for close to 60 percent of its sales, chiefly in the Middle East and Africa, where political instability and volatile currencies can crimp revenue.  
Shares in Lafarge were 3.1 percent higher at 54.24 euros at 0913 GMT, outperforming a flat STOXX Europe 600 construction and materials sector index. Rival Holcim, which will release results on Feb 26, was little changed.
"Fourth-quarter results are slightly below expectations, hit by the currency effect, but guidance sounds reassuring," wrote Natixis analysts, who have a "buy" recommendation on the stock.
Lafarge expects the cement market to expand between 2 and 5 percent this year, led by 4 to 7 percent growth in North America, Middle East and Africa. It said it planned to expand existing production capacity in Sub-Saharan Africa, mainly Nigeria, Tanzania and Zambia, to address rising demand.
"Cement is a product of first necessity," Chief Executive Bruno Lafont told reporters. "I'm very confident in how things are going in emerging markets," he added, noting that demographics and urbanisation trends supported Lafarge's businesses in emerging markets despite "hiccups" now and then.
Lafont also said he saw market conditions stabilising in Europe this year, thanks to signs of improvement in Spain and Greece. He said he expected sales to dip slightly in France this year but forecast a "rather positive market" in the UK.
   
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The group kept its dividend stable at 1 euro per share and reaffirmed its target to achieve at least 600 million euros of EBITDA this year from cost reduction and innovation measures, and to reduce net debt to below 9 billion.
Net debt stood at 10.3 billion euros as of Dec. 31 and, since then, the group has already secured 380 million euros from divestments.
The group, which is trying to cut debts built up from an acquisition spree, is in the process of selling non-core assets to focus on cement and concrete. It is also limiting spending, looking for energy savings and aiming to introduce higher-margin specialist products, as well as reducing the time it takes to get them to market.
The debt pile results mainly from Lafarge's 2008 purchase of Egypt's Orascom and has led to "junk" ratings from credit rating agencies Standard & Poor's and Moody's.
Lafarge said it aimed to return to an investment grade rating by the end of this year.
Quarterly earnings before interest, tax, depreciation and amortisation (EBITDA) fell 6 percent to 793 million euros ($1.09 billion), while sales dipped 2 percent to 3.71 billion.
Analysts polled by Reuters had on average expected quarterly sales of 3.7 billion euros and EBITDA of 853 million.