French construction groups Saint-Gobain and Lafarge announced steps to raise 1.5 billion euros in capital and implement various cost-cutting measures to help weather the storm in anticipation of an expected rebound in 2010.
REUTERS - Building material giants Saint-Gobain and Lafarge each launched 1.5 billion euro rights issues as they turned to investors to buttress them against the impact of a worsening economic crisis.
Two of France's biggest companies and global leaders in their sectors, both are faced with a brutal slump in the construction market in the United States and Western Europe, which has eroded earnings already strained by financial charges linked to a string of recent acquisitions.
Saint-Gobain - the group that insulates one in five American homes and makes windows for half the cars produced in Europe - and cement giant Lafarge also slashed their dividend payouts.
Saint-Gobain, which had originally been scheduled to release results on Thursday evening, unveiled details of its heavily-discounted issue of new shares early on Friday.
It also stepped up cost-cutting efforts as erosion of its core housing construction and car markets pushed its full-year net profit down 9.5 percent to 1.91 billion euros.
"Saint-Gobain expects 2009 to be an extremely challenging year, particularly in the first six months," it said, adding the limited economic visibility also made obsolete its targets of annual average growth of 5 percent in like-for-like sales and 10 percent in earnings per share between 2007 and 2010.
The 14 euro price for new shares compared to a closing price on Thursday of 27.99 euros. The issue runs to March 6.
Both companies said the cash calls and various cost-cutting measures would strengthen their financial flexibility and help them weather the worst of the crisis in 2009 before an expected market rebound in 2010.
Challenging year ahead
Making cash calls at times of low equity valuations underlines the tight conditions on credit markets and new caution among companies to prefer equity over debt.
Lafarge announced its 1.5 billion euro capital increase as part of a 4.5 billion plan to shore up its balance sheet after a downturn in construction hit the cement giant's 2008 profits.
This issue will need approval from shareholders at a March 31 meeting.
Lafarge also obtained a new 1 billion euro banking facility for two years, halved its dividend to save 400 million euros, and announced new cuts in costs and capital expenditure.
The measures should help the world's biggest cement group proceed with the early repayment at the end of June of a 2.6 billion euro loan linked to the 2007 takeover of Orascom Cement.
Analysts said this would ease market concerns of a breach in the terms of the loan following recent credit rating downgrades. Lafarge's debt surged 94 percent to 16.884 billion at end-2008, mainly due to the 8.8 billion euro Orascom Cement deal.
"The market should react positively to the fact that the management is now actively addressing the capital structure," said Morgan Stanley analyst Michael Watts.
Shares in Lafarge were 3.5 percent lower at 35.53 euros by 0846 GMT, valuing its share capital at around 7.1 billion euros. Saint-Gobain's stock shed 14 percent to 24.14 euros, giving it a market capitalisation of some 10.7 billion euros.
Lafarge Chief Executive Bruno Lafont defended the company's move in a conference call with journalists.
"We think this is the right decision, with the right amount. This is what we need to do today... In a period of uncertainty we need to eliminate the risk that a fragile balance sheet could raise questions about our capacity to pay back debt."
Lafont said he expected government stimulus packages to spur large infrastructure projects that should bolster Lafarge's business in 2010, a comment echoed by Saint-Gobain Chief Executive Pierre Andre de Chalendar.
"Saint-Gobain acts with a great attention on financial discipline... (which) will help it fully benefit from a recovery when it does occur," Chalendar said in a conference call.
Date created : 2009-02-20