Lafarge announced swingeing cuts this week in a new bid to squash its debt. The headline figures were that it intends to generate at least Euro1.75bn earnings before interest, taxes, depreciation and amortisation (EBITDA) in the four years from 2012 to the end of 2015 and that it aims to reduce net debt below Euro10bn in 2013.
Given that Lafarge's EBITDA has dropped from Euro4.62bn in 2008 to Euro Euro3.22bn in 2011 this seems like a tough job. In addition to finding the savings, Lafarge may also have to battle the decline of the Euro a clear and present danger for a multinational with deep Eurozone foundations. The group has detailed planned cost savings of at least Euro400m in 2012 and of at least Euro300m in 2013. Both of these figures are below the yearly average of Euro435m required to meet the EBITDA target of Euro1750m by 2015.
First came the regional restructuring from January 2012 with the job losses but how Lafarge will really save cash still remains unclear. Higher energy savings through alternative fuels, increased savings from new programmes to manage electricity and productivity improvements were all mentioned in the press release. No specific information was provided for how these changes will affect the bottom line. Practically, analysts expect that Lafarge will raise its cement prices in response to rising energy input costs, making profits along the way with raised margins.
Lafarge chief executive Bruno Lafont stated that the group will raise Euro1bn in asset sales in 2012. On the cement side, progress on the Lafarge-Tarmac UK joint venture will start by the end of June 2012. The combined assets are valued at around Euro500m. News on an Indian acquisition in Lafarge South Africa has gone quiet since Aditya Birla Group and Shree Cement were reported as showing interest in January 2012. The holding was valued at around Euro650m.
Crudely assuming that half of the proceeds of the sale of the Lafarge-Tarmac assets will go to Lafarge, selling Lafarge South Africa would probably allow Lafarge to hit Lafont's target for 2012. That just leaves similar savings for 2013, 2014 and 2015 to be found! What does Lafarge intend sell next?
