WORLD: LafargeHolcim sets strenuous targets even as sales decline

LafargeHolcim, the cement giant in the midst of a postmerger restructuring, lifted its proposed dividend and said it now expected to generate free cash flow of at least Sf10bn ($9.9bn) by the end of 2018.

The targets eclipsed Wednesday’s third-quarter sales and profit figures that missed analysts’ expectttations, although some analysts said the medium-term goals were too ambitious.

The tie-up between Switzerland’s Holcim and France’s Lafarge, announced last year, forged the biggest cement maker aiming to cut costs and counteract slumping demand for cement after the financial crisis depressed construction.

CEO Eric Olsen said the company was closing Chinese plants and combining management at businesses there to cut costs and ride out declines in demand.

"China is a fantastic example of … bringing Lafarge and Holcim assets together where we can do things in reducing costs that we wouldn’t have been able to do otherwise," Mr Olsen said. "We need to prepare ourselves for demand that’s not going to come back. In a situation like that, it’s low cost that wins."

Weakness in demand in China and Brazil was being partially offset by "positive trends" in the US, Mexico, Britain and the Philippines, the firm said.

The Sf10bn cash flow target would mark a turnaround from 2014, when free cash flow was Sf1.76bn at Holcim and €592m at Lafarge.

The company proposed a 2015 dividend of Sf1.50, up from the Sf1.30 it suggested in July.

"It’s my ambition that by the end of 2018, LafargeHolcim will have changed the game in free cash flow generation in our industry," Mr Olsen said. "We’ll be looking at returning value to shareholders through dividends and/or share buybacks."

The company’s shares were up 3.9% in early trade, after falling 18.6% this year.

Operating earnings before interest, tax, depreciation and amortisation (ebitda) declined 16.1% in the third quarter to Sf1.64bn, below the Sf1.75bn forecast by analysts.

Quarterly sales dropped 8.7% to Sf7.83bn, missing analysts’ forecast for Sf7.92bn.

"The mid-term outlook seems promising," J Safra Sarasin analysts said in a note. "The US, UK and most countries in Asia Pacific and Latin America showed good development."

LafargeHolcim said it was targeting operating ebitda of at least Sf8bn by 2018 and cumulative free cash flow of at least Sf10bn from 2016 to 2018.

Some analysts said these targets were too bullish.

"We find it difficult to reconcile the current poor operating performance with management’s optimistic medium-term outlook," Bernstein’s Phil Roseberg said in a note.

Third-quarter net profit rose to Sf812m, from Sf504m a year earlier, on asset sale gains.

LafargeHolcim expected divestments of Sf3.5bn next year.