Lafarge has reported its results for FY14 and 4Q14. The Group has completed its 2012 – 2015 cost reduction and innovation objectives a year ahead of schedule, generating €600 million in 2014 (€370 million from cost cutting and €230 million from innovation).
For the full year, sales were down 2% to €12 843 million, but up 3% on a like-for-like basis. The negative impact of exchange rates in the first three quarters reversed in 4Q14 when sales were positively impacted by 2% in the quarter. EBITDA was likewise down 3% at €2721 million, but up 5% when excluding scope, exchange rates, CO2 sales, a €20 million one-time gain recorded in North America in 2013 and the loss of volumes in Iraq in the second half. The Group EBITDA margin improved 40 bps like-for-like over the year, despite strong inflation in Latin America and Asia. Current operating income was up 7% like-for-like. Reported net income was affected by one-off items, including:
- A €385 million non-cash impairment of assets, notably related to the current situation in Syria and to a revision of the discount rate used for Iraq impairment testing.
- €292 million cash gains and losses on divestments.
- Merger-related costs (€126 million total pre-tax costs year-to-date; cash impact of €90 million net of tax).
- €49 million one-time non-cash adverse effects on the deferred tax positions to reflect the newly applicable tax rates in some countries.
Adjusted for one-off items, net income for the year increased by 10%. This reflects organic growth, the improvement of the result of joint ventures, which increased from flat in FY13 to €69 million in FY14, and the reduction of financial expenses, which more than offset the adverse impact of scope and exchange rates.
Cement prices were stable in 4Q14 and up 1.6% y/y. Net debt was further reduced, at €9.3 billion as of 31 December 2014.
Development and growth
Growth in cement volumes was supported by solid growth in the US, higher volumes in Egypt thanks to the company’s fuel diversification strategy, the start-up of new plants in Russia and India, as well as innovation actions. The 4% rise in cement volumes over the year excludes the impact of the limited ability to transport cement in Iraq in the second half of the year. However, the positive impact of these factors was somewhat mitigated by reduced sales in France and a decline in aggregates and ready-mix volumes of 1% and 2%, respectively.
The group’s investments totalled €1 billion for the full year, of which sustaining capital expenditures amounted to €356 million and development investments and acquisitions amounted to €669 million. Lafarge received €621 million in cash for divestments in the quarter, mainly reflecting the disposal of the group’s operations in Ecuador, its stake in the Elementia JV in Mexico and the Korkino plant in Ural, Russia. Since the beginning of 2014, the group secured almost €1.4 billion in divestments. A further €0.2 billion is to be received in 2015 with the divestment of operations in Pakistan.
“2015 will be an exceptional year for the Group,” said Bruno Lafont, Chairman and CEO. “Over the past years, we have undertaken a structural and fundamental transformation. We focused on or customers, promoted innovation and reshaped our portfolio to concentrate on fast-growing market segments. We have also developed a culture of strict capital allocation discipline, reducing our cost base and optimising our working capital and our investments.”
“Lafarge is today perfectly positioned to best benefit from upswings in any and all of its markets in an economic environment that, whilst remaining volatile, will be more favourable in 2015. We are committed to continue all our actions, including improving financial structure. With this in mind, I am confident that we will drive significant growth of our results and we do expect an EBITDA of between €3 billion and €3.2 billion 2015.
“2015 will also be the year of our planned merger to create LafargeHolcim, which is now only four months away. We have accomplished major steps, including the announcement of the future executive committee. We are today all fully mobilised to launch the new Group from a running start on day one.”
Lafarge sees overall cement demand increasing by 2 – 5% in 2015, driven predominantly by growth in the emerging markets. Cost inflation should continue at a slower pace than in 2014 due to falling oil prices. The Group also expects to benefit from more favourable exchange rates.
Lafarge is targeting at least €1.1 billion of additional EBITDA from its cost reduction and innovation measures in 2015 – 2016. In this context, the Group should drive significant growth of its results and expect an EBITD of between €3 billion and €3.2 billion in 2015. Capital expenditures in 2015 will be limited at €1.1 billion. Net debt should be reduced to between €8.5 – 9 billion at year end.
Fiona Cincotta, Senior Market Analyst at www.finspreads.com, comments: "These projections look to be a sensible estimate, especially as an upswing in construction in many markets seems to be on the cards. As we emerge from the recent global crisis construction will again begin to play an important role within both developed and developing economies and thanks to Lafarge's structural and fundamental transformation over the past few years they now appear to be well positioned to take advantage of such growth."
Adapted from press release by Katherine Guenioui
Read the article online at: https://www.worldcement.com/europe-cis/18022015/lafarge-completes-cost-reduction-objectives-a-year-ahead-of-schedule-361/