Sharp increase in results driven by overall improved markets and strong performance management
- Operating income up 33% with sales increasing by 10%, on a like-for-like basis against a poor first half in 2003
- Strong growth of the net income
- Sharp increases in all Divisions
- Clear benefits of our geographic spread and strong presence in the emerging markets of Central and Eastern Europe, Mediterranean Basin, Africa and Asia
- Growth of operating income on ordinary activities for the full year 2004 expected to exceed 10%, excluding currency fluctuations
Group finacial highlights
- Sales increased by 7%, and 10% on a like-for-like basis, to €6,794 million (2003: €6,350m)
- Operating income on ordinary activities up 31%, and 33% on a like-for-like basis, to €876 million (2003: €670m)
- Cash flow from operations increased by 47% to €903 million
- Net income increased strongly to €376 million (2003: €148), reflecting the overall improved operating performance and the decrease of net financial charges, which benefited from the substantial net debt reduction achieved in 2003
- Net income per share up to €2.3 (2003: €1.1)
Bernard Kasriel, Chief Executive Officer of Lafarge, said:
“We are delighted with the widespread upturn in our results across all Divisions. Whereas we experienced a poor first half in 2003, we have seen more normal weather conditions in 2004 and increased construction activity in many of our major markets. In recent years, we have built a strong business mix with a well-balanced geographic spread including an extensive presence in growth markets. The quality of this portfolio together with strong performance management are behind the conversion of a 10% rise in sales into a 33% increase in operating income. We are well positioned for the future.
Our strong performance in the first half gives us confidence that the growth of our operating income on ordinary activities for 2004 should exceed 10%, excluding currency fluctuations and barring unusually bad weather conditions. This should be achieved against a continuing rise in energy costs and the strong performance of our business in the second half of last year.”
Group operating highlights
- On a like-for-like basis, Group sales were up 10%, with improved sales in many regions, notably North America and Eastern Europe which had been weak in the first half of 2003. Operating income on ordinary activities increased by 33% on a like-for-like basis. This was principally due to strong volume growth across all Divisions and enhanced operational efficiency, particularly in Roofing and Gypsum.
- The Group operated in an overall favorable pricing environment. In many regions, price rises have been successfully implemented and contributed to the offsetting of increased energy and transportation costs. Cement prices in the Philippines recovered strongly, and price recovery is underway in Germany. Gypsum prices in the US increased sharply.
- In an environment of strong increases in fuel and freight prices, the Group has proved once again its expertise in containing the cement fuel costs, through fuel flexibility and purchasing power.
Group operating highlights by Division
(All % variances relate to operating income on ordinary activities on a like-for-like basis)
Cement: + 22% operating income, driven by price recovery in the Philippines and Germany, strong performance and excellent growth in emerging countries
- Operating income up 22% to €663 million
- In Western Europe, France, Spain and Greece showed good levels of performance, offsetting more subdued markets in Germany and the UK.
- Eastern Europe achieved a 70% increase in operating income, with growing volumes and favorable pricing trends more than offsetting fuel and power cost increases. Poland, Romania and Russia performed particularly well, with our new production line in Kujawy, Poland, helping to meet growing demand and improve performance. With strong positions within the European Union accession states and fully modernized and restructured operations, the Group demonstrates its ability to capture the upside of market growth.
- Operating income in the Mediterranean Basin and Africa-Indian Ocean increased respectively by 61% and 34%, driven by strong performance in Turkey, Jordan and Egypt in spite of cost pressures, and by significant growth in South Africa.
- In Asia, operating income was up 37%, underpinned by pricing recovery in the Philippines and volume and price uplift in India. Malaysia improved slightly its performance despite an unfavorable domestic market and higher energy costs. In South Korea, operating income was lower due to weaker market conditions and the higher cost of coal.
- In Latin America, operating income was slightly down, the significant recovery of results from Venezuela offsetting the decline in Brazil where market conditions were soft.
- In North America, operating income rose 38%, with stronger demand in most markets, the successful implementation of price increases and lower fixed costs. Growth in profitability was however dampened by higher volumes of cement imported to meet a surge in demand in some regions.
Aggregates and Concrete: + 57% operating income, with progress notably in North America and France
- Operating income up 57% to €91 million, with progress in most regions, notably North America, France and South Africa.
- The main drivers for increased operating income were strong growth in volumes for both aggregates and concrete and our ability to implement price increases successfully, contributing to improved profitability year-on-year.
- The lack of highway spending impacted the aggregates, asphalt and paving activities in the UK.
Roofing: + 87% operating income, benefiting from extensive restructuring and cost optimization
- Operating income up 87% to €68 million, compared to low first half of 2003.
- Extensive restructuring of our operations since 1999, particularly in Germany, helped deliver much improved results despite a still difficult German market. Overall sustained reduction in costs was achieved through operational efficiency gains and a reduction in overheads.
- North America and Europe delivered strong operating income growth as a result of overall well-orientated markets, with the exception of Benelux, a contracting and very competitive market. Eastern Europe continued to show strong growth.
Gypsum: + 92% operating income, with strong improvement in North America
- Operating income up 92% to €74 million, with improved results in major regions except Germany.
- North American operations achieved a strong recovery with operating income up to €5 million from a loss of € -13 million in the first half of 2003, as a result of a more favorable pricing environment and improved operational efficiency, which enabled us to increase volumes by 9% compared to the first half of 2003.
- Western Europe, notably France, continued to deliver solid results with continuing improvement in performance.
- In other regions, operating income grew strongly up 69% to €23 million from €14 million in the first half of 2003, with a strong improvement in Poland.
We pursue the strengthening of our financial structure, notably through our very selective investments policy.
Sustaining capital expenditure
Sustaining capital expenditure totaled €257 million, relating to the ongoing upgrading of existing industrial operations around the world.
Investments in organic growth aimed at capacity increase and performance improvement
Selective capacity expansion projects continue, in particular on: the building of a new production line in Bouskoura, Morocco to reinforce the plant's capacity and profitability, the doubling of the capacity in Chongqing and Dujiangyan plants, China, to meet the very strong growth of the local market, the building of a new cement plant in Hidalgo, Mexico to replace an existing high cost plant, and the building of a new cement plant in Bangladesh. These investments are expected to create value quickly, given their exposure to growth markets.
€291 million on high potential acquisitions
Acquisitions during the first half totaled €291 million and included: the acquisition of the cement and ready-mix concrete assets of The Concrete Company of Colombus, in the South-East United States for €87 million, the acquisition of Hupfer, an aggregate and concrete ready-mix producer in France and Switzerland for €69 million and the acquisition of a 10.2% stake in Lafarge Halla Cement in South Korea, to increase to 50.1% our percentage ownership. All acquisitions were selected for their synergies with our existing operations, and potential as a platform for further growth in new, attractive and profitable markets, as is consistent with Lafarge's long-term business strategy.
€70 million disposals of non-core assets
The Group's portfolio of assets in each business Division is constantly refined to ensure it fully fits with our strategy. Accordingly, during the six-month period the Group made €70 million of disposals through the divestment of several small non-core assets.
€612 million Eurobond exchange offer as part of Group debt management
In July the Group successfully completed a Eurobond exchange offer as part of its ongoing active debt management. A total of € 560 million of existing bonds maturing in 2008 were exchanged against a new issue amounting to € 612 million and maturing in 2014. The transaction extended the average maturity of the debt with favorable market terms.
- In most markets where the Group operates, we expect construction activity to remain at good levels in the second half of the year, which will compare to the strong levels of activity in the second half of last year.
- The overall pricing environment should remain favorable, with further price increases particularly in Cement and Gypsum in the US and in Cement in Germany, although some of these gains should be offset by continued pressure on energy and transportation costs.
- Our strong performance in the first half gives us confidence that the growth of our operating income on ordinary activities for 2004 should exceed 10%, excluding currency fluctuations and barring unusually bad weather conditions.
June 30, 2004
June 30, 2003
|Operating income on ordinary activities||876||670||+ 31%|
|Net income||376||148||+ 154%|
|Net income per share in €||2.3||1.1||+ 100%|
|Cash flow from operations||903||616||+ 47%|
June 30, 2004
June 30, 2003
|Group net debt||7,464||10,111||- 26%|
Lafarge, the world leader in building materials, holds top-ranking positions in all four of its Divisions: Cement, Aggregates & Concrete, Roofing and Gypsum. Lafarge employs 75,000 people in 75 countries and posted sales of €13.6 billion in 2003.
Lafarge's next financial publication - 2004 9 months sales - will be on October 21, 2004 (before the Euronext stock market opens.)
For release worldwide with simultaneous release in the United States.
Statements made in this press release that are not historical facts, including statements regarding the level of construction activity and pricing environment in the second half of 2004, as well as our expected operating income, are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions ("Factors"), which are difficult to predict. Some of the Factors that could cause actual results to differ materially from those expressed in the forward-looking statements include, but are not limited to: the cyclical nature of the Company's business; national and regional economic conditions in the countries in which the Group does business; currency fluctuations; seasonal nature of the Company's operations; levels of construction spending in major markets; supply/demand structure of the industry; competition from new or existing competitors; unfavorable weather conditions during peak construction periods; changes in and implementation of environmental and other governmental regulations; our ability to successfully identify, complete and efficiently integrate acquisitions; our ability to successfully penetrate new markets; and other Factors disclosed in the Company's public filings with the French Autorité des Marchés Financiers and the US Securities and Exchange Commission including its Reference Document and annual report on Form 20-F. In general, the Company is subject to the risks and uncertainties of the construction industry and of doing business throughout the world. The forward-looking statements are made as of this date and the Company undertakes no obligation to update them, whether as a result of new information, future events or otherwise.