Lafarge feels benefits of cost-reduction programme

Group highlights

• Free cash flow of €2834 million, a 34% improvement.
• Sales down due to lower volumes, foreign exchange, and the scope of operations divested.
• Volume declines slowed in the fourth quarter on a like-for-like basis, despite the impact of adverse weather conditions.
• Emerging markets current operating income rose on a like-for-like basis, excluding Central & Eastern Europe.
• Cement EBITDA margin remained resilient at over 30% for the year.

• Exceeded action plan to strengthen financial structure:

1. Cost reduction above commitment, achieving €230 million in structural savings.
2. Capital expenditure reduced by over €1 billion to €1.6 billion.
3. €919 million divestments.
4. Working capital reduced by more than €1 billion.

Bruno Lafont, Chairman and Chief Executive Officer Of Lafarge, said:
“In a challenging year, Lafarge has successfully completed the action plan designed to strengthen its financial structure announced in February 2009. We have achieved solid cash generation and significant cost savings that lowered debt and supported operating margins. These efforts will continue in 2010 through strict cash control and an additional €200 million target of structural cost savings. This will provide a lower cost base and an improved financial structure as the economic recovery begins to take hold.
“Entering 2010, we anticipate overall cement demand will increase in Lafarge’s markets. While mature markets are expected to recover slowly during the second half of the year, we see emerging markets providing solid growth potential. Our development program has already added cement capacity in these markets enabling Lafarge to capture this growth.
“Lafarge’s development in emerging markets, its promotion of innovative products, and its focus on cost reduction are strong foundations from which to benefit from the economic recovery and return to earnings growth.”

Highlights by business

Cement

• Sales were down 10% both year-to-date and in the quarter, at constant scope and foreign exchange, due to lower volumes led by the market slowdown in Europe and North America.

• Solid growth in key markets of Middle East and Africa, Latin America, and Asia.

• Current operating income, at constant scope and foreign exchange, was -18% year-to-date and -16% in the quarter, driven by lower volumes.

• EBITDA margin remained strong at 30% in the fourth quarter, slightly below last year despite sharp volume declines.

• Pricing remained solid overall with a limited number of markets showing price declines.

•  Positive impact of the cost reduction program in all regions.

Aggregates & concrete

• Sales were down 21% year-to-date and 16% in the quarter at constant scope and foreign exchange.
• Current operating income was -69% year-to-date and -64% in the quarter, reflecting the exposure to developed markets where volumes declined strongly.
• The rate of decline in operating margins slowed in the quarter.
• Pricing improved overall across all product lines, with benefits seen from value-added products.
• Positive impact of the cost reduction program in all regions.

Gypsum

• Sales were down 12% year-to-date and in the quarter.
• Current operating income stable as compared to last year.
• Volume declines resulting from a general slowdown of housing construction in developed markets.
• Positive impact of the cost reduction program in all regions.

Investments and divestments

• Investments totaled €1719 million in 2009, compared to €12 067 million in 2008.

• Sustaining capital expenditures decreased by 58% to €372 million in 2009.
• Internal development capital expenditures declined by 35% to €1234 million in 2009.
• Limited acquisitions in 2009.
• During 2009, Lafarge achieved divestments of €919 million (including the reduction of debt attributed to disposed operations).

Outlook
Emerging markets continue to show strength and Lafarge forecasts that cement volumes in these markets will continue to drive demand in 2010. For developed markets, the Group expects that demand will start to recover slowly during the second half of the year. Overall, the Group expects cement volumes in its markets to increase between 0 and 5% in 2010. Pricing is expected to remain solid for the year in most of Lafarge’s markets.

Read the article online at: https://www.worldcement.com/europe-cis/22022010/lafarge_feels_benefits-of_cost_reduction_programme/