TEXT-Fitch affirms Saint Gobain at 'BBB+';outlook stable

Wed Jun 20, 2012 6:24am EDT

(The following statement was released by the rating agency)

June 20 - Fitch Ratings has affirmed Compagnie de Saint Gobain's (Saint Gobain) Long-term Issuer Default Rating (IDR) and senior unsecured rating at 'BBB+' with a Stable Outlook. The Short-term IDR is affirmed at 'F2'.

"Saint Gobain's ratings reflect its geographically and product-diverse business profile and its ability to push through price increases in a competitive worldwide building materials market, due to its concentration on high performance and innovative materials" says Jean-Pierre Husband, Director in Fitch's European Corporate Finance team. "Fitch expects that leverage (adjusted net debt/EBITDAR) will remain around 2.4x-2.6x in 2012 and 2013, despite a challenging environment for building materials".

The EUR500.8m April 2014 Saint Gobain Nederland BV guaranteed by Saint Gobain notes' senior unsecured rating is also affirmed at 'BBB+'.

The 'BBB+' ratings reflect Saint-Gobain's leading market positions, geographical diversification (present in over 64 countries), focus on innovation, reasonably strong liquidity and balanced debt maturity profile. Fitch has historically considered Saint-Gobain's business profile to have above-average, but not complete, resilience to economic downturns compared with its peers, thanks to its products, lower exposure to new-build markets and end-market diversification. However, Fitch notes that any slowdown in the improvement of its financial profile, whereby the company could not operate on leverage (net adjusted debt to EBITDAR) of below 3.0x on a sustained basis would be a credit negative.

Fitch would expect the group to operate on a lower leverage, comfortably below 2.5x (on a net adjusted debt to EBITDAR basis) on a sustained basis, if Saint-Gobain were to sell its Verallia packaging division and use the proceeds to repay debt.

Fitch regards Saint Gobain's liquidity position as reasonably solid. At end-2011 Saint-Gobain had cash of EUR2.9bn and undrawn committed facilities of EUR4.0bn, compared with debt maturities of EUR2.7bn in 2012, and capex of EUR2.0bn in 2011 (i.e., a liquidity score of 1.6x, assuming free cash flow of around EUR420m for FY12).

There was a significant upswing in both revenue and operating profits in 2011. Revenue was up 5.0% on a like-for-like basis in 2011 (compared with 2010), driven by a strong recovery in flat glass and innovative materials (such as abrasives), construction products and distribution. Q112 was more challenging with like-for-sales only rising 0.9% (compared with Q111), driven by price rises of 2.4%, indicating some ability to pass on price increases to customers. Volumes fell 1.5% in Q112, due to weaker automotive glass demand in Q112.

In 2011 the combination of increased sales and higher material costs resulted in higher inventories and trade receivables, leading to increased working capital requirement of around EUR540m. Fitch will continue to monitor Saint Gobain's working capital management in light of an uncertain business environment in 2012.

Capex in 2011 was EUR2.0bn and Saint-Gobain intends to spend a further EUR2.0bn, or above 4% of sales in 2012. Although this figure is below the EUR2.3bn spent in 2007, it still underlines Saint-Gobain's commitment to R&D and technical innovation. Around 30% of group sales and 40% of operating income are derived from energy efficiency-related products.

Saint Gobain is a world leader in the manufacture and distribution of building and high performance materials with a turnover of EUR42.1bn at FY11.