French building materials company Lafarge SA (LG.FR) Friday said cement demand this year would be lower than it had previously expected as its European markets weren't yet recovering from the economic downturn.
Posting a 15% decline in second-quarter net profit, Lafarge, one of the world's biggest cement producers, said that in the light of the new outlook, it would limit investment to EUR1 billion next year as it tries to further reduce its debt.
"Halfway through the year, given the uncertain pace of economic recovery and the contrasted situation from one country to another, we have readjusted our 2010 full year market outlook," Chief Executive Bruno Lafont said.
The company said it now expects cement demand this year to be between a drop of 1% and an increase of 3%. Previously, it had estimated that cement volumes in its markets would be flat to an increase of 5% compared with last year.
It said volumes and prices are rising strongly in Latin America, and volumes are rising to a lesser extent in Asia, North America and Middle East and Africa. However, volumes across Europe are continuing to decline. Overall, volumes declined at a slower rate in the second quarter than the first.
The comments echo an outlook given by Mexican rival Cemex SAB (CX, CEMEX.MX) earlier this week. Cemex said that while it is seeing signs of a turnaround in some markets, like the U.S. and Mexico, it is expecting shap declines in markets like Spain. It said it couldn't predict where demand would go overall because of continued economic uncertainty.
Lafarge said net profit in the three months to June 30 fell to EUR329 million, from EUR387 million a year earlier as it paid more income tax and restructuring costs rose.
However, sales rose 1.7% to EUR4.44 billion, from EUR4.36 billion.
The world's cement makers have been hit hard by the economic downturn as the construction industry around the world contracted. There have been signs of recovery in some markets this year, although many remain subdued. The cement companies reacted by cutting costs in an effort to prop up profits.
Lafarge said structural cost savings in 2010 should exceed its EUR200 million target, while it should also exceed the EUR500 million asset-divestment goal it had set for 2010. It has set a new target of more than EUR200 million in structural cost savings for 2011.
Divestments have been part of the company's effort to cut debt. Rated BBB- by Standard & Poor's, the company is just one notch away from losing its investment grade rating. The company's debt stood at EUR15.16 billion at the end of the first half of the year, down from EUR15.39 billion a year earlier as the weak Euro raised its debt level by EUR1 billion compared with the end of last year.
At 0840 GMT, Lafarge shares traded 4.2% lower at EUR41.68 each, against a CAC-40 index down 0.7%.
