June 24 (The following statement was released by the rating agency)
Fitch Ratings has affirmed Germany-based HeidelbergCement AG's Long-term Issuer
Default Rating (IDR) at 'BB+' and Short-term IDR at 'B'. The Outlook on the Long-term IDR is
Stable. The agency also affirmed the senior unsecured rating of debt issued by HC's related
entities, HeidelbergCement Finance BV, HeidelbergCement Luxembourg SA and Hanson
Ltd at 'BB+'.
The rating affirmation and the Stable Outlook reflect Fitch's expectations that,
despite the improving operating performance, deleveraging will slow in the next
12-18 months, mainly due to the increase in capex. Credit metrics are therefore
expected to remain in line with the current rating.
KEY RATING DRIVERS
-Challenging Market Outlook: The operating environment remains challenging in
Europe, where volumes could drop by high single-digit rates in 2013. Fitch
expects a slow recovery in North America and sustained growth in emerging
markets. Pressure on margins could ease further, as the price recovery
continues. However, major risks persist as the recovery in US could prove
fragile and cost inflation remains an issue in many emerging markets.
-Successful Cost Cutting: Margins are supported by the successful cost-cutting
measures. The company has increased its savings targets for 2013 to EUR240m from
EUR200m, following overachievement of savings targets over the past two years.
It is also implementing additional logistics efficiency measures and a new
pricing policy. Coupled with a moderation in input cost inflation, these
measures should improve earnings in 2013.
-Debt Reduction to Decelerate: Deleveraging will continue in 2013 and 2014,
although at a slower pace. We expect funds from operations (FFO) gross leverage
in excess of 4.0x in both 2013 and 2014, driven by a capacity increases in
emerging markets. We forecast capex above EUR1.2bn over the next two years from
EUR800m-EUR900m per annum in 2011 and 2012.
-Investment Grade Business Profile: HeidelbergCement's business profile is
compatible with an investment grade rating, thanks to its geographical
diversification and solid market positioning, as it is the world leader in
aggregates and is among the top-three producers in the cement sector. The rating
is constrained at the current level by leverage that is not commensurate to an
investment grade level.
RATING SENSITIVITY GUIDANCE:
Positive: Future developments that could lead to positive rating actions
-A higher and faster deleveraging with FFO gross leverage declining below 3.5x
on a sustainable basis
-Maintaining a positive free cash flow (FCF) on a sustained basis.
Negative: Future developments that could lead to negative rating action include:
-A deterioration of the trading activity affecting operating cash flow generation and
resulting in FFO gross leverage in excess of 4.5x on a
sustainable basis and in a negative FCF.