A Lafarge cement mixer truck is driven from the refilling station at Lafarge SA’s depot in Paris, France. (Photographer: Fabrice Dimier/Bloomberg)

LafargeHolcim Says Cost-Cutting Drive Will Lift 2019 Profit

(Bloomberg) -- LafargeHolcim Ltd. said its plans to slim down will boost profit next year as Europe’s biggest cement maker sells assets and vacates its old headquarters in Paris and Zurich.

  • The changes are meant to accelerate profit growth. The company now expects recurring earnings before interest, taxes, amortization and depreciation to increase at least 5 percent, versus a target of 3-5 percent this year.

Key Insights

  • Chief Executive Officer Jan Jenisch is near Birmingham on Wednesday to explain to analysts how he will go about executing a growth plan through 2022. The sales and profit goals were set in March so now comes the hard part.
  • In a bid to slash operating costs, Jenisch is cutting through layers of management. He’s focused on 35 main markets, has closed some regional offices like Miami and Singapore and is moving out of HQ buildings to settle in Zug, Switzerland.
  • Jenisch has had to work hard to regain investor confidence after a messy merger and unrealistic financial targets under his predecessor. The CEO’s target of 2 billion francs ($2 billion) of asset sales is within reach after LafargeHolcim sold its business in Indonesia. The company wants a net debt ratio of 2 times or less by the end of 2019.
  • The bigger ambition in all this is to end up with a “capacity for strategic acquisitions” down the road, Chief Financial Officer Geraldine Picaud said in her presentation. So a few steps back for a possible big leap forward.

Market Reaction

  • Offering up guidance for 2019 when it’s still only November got a nod of approval from Vontobel analyst Bernd Pomrehn, who took it as a sign of management’s confidence to deliver on LafargeHolcim’s overhaul.
  • The shares gained 0.8 percent in Zurich to 45.96 francs as of 9:07 a.m., valuing the business at 28 billion francs ($28 billion).

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  • The company confirmed its 2022 strategy and aligned 2019 hopes to the same targets, namely recurring Ebitda growth of at least 5 percent and comparable sales growth of between 3 percent and 5 percent. That’s lower than the 4 percent to 6 percent seen for this year.
  • A 400 million franc-savings plan is expected to be completed in the first quarter 2019 and bolt-on acquisitions will continue.
  • Looking to keep a 2 franc-a-share dividend.
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