Not for release, publication or distribution in or into the United States, Canada, Australia or Japan
Blue Circle's document, like its recent documents on property and Asia, offers no value today but promises of jam the day after tomorrow.
Lafarge notes that Blue Circle's figures have not been reported on by Blue Circle's financial advisers or auditors. Blue Circle has specifically stated that it should not be inferred that Blue Circle's profits in any future year will necessarily be greater than those reported for the year ended 31 December 1999.
Lafarge considers that Blue Circle has sought to make a virtue of promising savings which, to a large extent, need to be achieved as a matter of routine by any company which seeks to be competitive in the global cement industry.
1 - Blue Circle's cost reduction programmes have not created shareholder value
In the UK, Blue Circle claims to have reduced costs by some £29 million in 1999 compared with 1995 but with associated restructuring charges of £69 million. Shareholders have, however, not benefited. Operating profits in Blue Circle's UK cement business have risen by only £19.5 million in the period 1995 to 1999 but this improvement was mostly the result of higher prices. The achievement of further major savings in the UK will depend to a large extent on the successful and timely commissioning of the proposed new Medway works, which is not due before 2002.
At group level, and despite persistent references in the last three years to cost reduction programmes throughout the group, Blue Circle's overall profitability was no higher in 1999 than in 1995.
In the light of historical performance, shareholders should ask whether the operational improvement programme will have any material lasting effect on the underlying profitability of Blue Circle's businesses.
2 - Lasting profit improvement requires scale which Blue Circle does not have
In Lafarge's experience, performance improvements are best delivered by substantially increasing the scale of the business. Broad geographic coverage allows effective benchmarking and the sharing of production knowledge. Lafarge operates 96 plants around the world.
Blue Circle is not a global player; it operates only 33 plants which are loosely scattered throughout the world. Its ability successfully to share production knowledge and utilise effective benchmarking techniques will be severely constrained by the modest scale of its plant network.
Shareholders should question the extent to which Blue Circle will be able to extract meaningful performance improvements from such a disparate collection of businesses. Shareholders should also consider the potential for minority shareholders to restrict Blue Circle's ability to achieve synergy benefits.
3 - When will value be created?
Blue Circle needs to provide assurances that any cost benefits will not be frittered away as additional leverage in price and market share wars which, ultimately, deliver no value to shareholders.
Shareholders should also ask how long it will take Blue Circle to create greater value than Lafarge's cash offer of 420p, available now.
Lafarge +33 1 44 34 11 11
Dresdner Kleinwort Benson + 44 207 623 80 00
BNP Paribas + 44 207 595 20 00
Financial Dynamics + 44 207 931 31 13
Dresdner Kleinwort Benson, which is regulated in the United Kingdom by The Securities and Futures Authority Limited, is acting for Lafarge and Lafarge Minerals and no one else in connection with the Offer and will not be responsible to anyone other than Lafarge and Lafarge Minerals for providing the protections afforded to customers of Dresdner Kleinwort Benson or for giving advice in relation to the Offer.
BNP UK Corporate Finance, a division of BNP London Branch which is a branch of Banque Nationale de Paris S.A., and Paribas, the London branch of Paribas S.A., (together "BNP Paribas") which are regulated in the United Kingdom by The Securities and Futures Authority Limited, are acting for Lafarge and Lafarge Minerals and no one else in connection with the Offer and will not be responsible to anyone other than Lafarge and Lafarge Minerals for providing the protections afforded to customers of BNP Paribas or for giving advice in relation to the Offer.
Dresdner Kleinwort Benson and BNP Paribas have approved this announcement solely for the purposes of Section 57 of the Financial Services Act 1986.
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