(The following statement was released by the rating agency)
Aug 16 - Fitch Ratings has affirmed Germany-based chemicals group Lanxess
AG's (Lanxess) Long-term Issuer Default Rating (IDR) and senior
unsecured ratings at 'BBB'. The Outlook for the Long-term IDR is Stable.
The affirmation and Outlook reflect Fitch's view that against an increasingly
uncertain backdrop, Lanxess' operational performance and credit profile offer
sufficient financial flexibility and headroom to withstand weakening market
conditions and to support its ongoing strategic expansion.
Sales and reported EBITDA grew by 11.5% and 10.6%, respectively, in H112 versus
H111, driven primarily by the strong raw material cost push and favourable FX
movements compensating for deteriorating volumes. With the slight softening in
volumes versus a strong H111, the reported EBITDA margin declined slightly to
14.7% from 15.1% in H111. Lanxess' pricing power was demonstrated in its ability
to increase prices in all three main segments, despite yoy reductions in sales.
Fitch's base rating case assumes a low single digit increase in sales in 2012,
reflecting weaker demand partly balanced by increased selling prices. The drop
in volumes should be partly cushioned by Lanxess' exposure to emerging economies
(37% of H112 sales) and to cycle-resilient end-markets (replacement tyre, agro,
consumer goods). Growth prospects for its high-grade synthetic rubber products
remain sound, although weaker than in 2011. Margins are expected to remain
fairly stable in 2012 and 2013, with a gradual increase over future years as new
capacity coming on-stream improves the product mix.
Liquidity is strong and was supported by cash positions of EUR234m at end-Q212,
the EUR1.4bn undrawn committed revolving credit facility (RCF) maturing in 2014
and an unused EIB loan of EUR200m, maturing in 2017. This compares with current
financial liabilities of EUR267m. In June 2012, Lanxess used short-term deposits
to redeem its EUR400m eurobond (2005 issue). Other short-term cash requirements
for 2012 include dividend payments of EUR71m (EUR0.85 per share) and capex of
around EUR700m (Fitch's assumption).
Lanxess continues to invest heavily in capacity expansion and de-bottlenecking.
Fitch forecasts assume capex at the upper end of management's guidance bracket
at EUR700m, reflecting these investments. Its new butyl rubber plant in
Singapore is due to come on-stream in Q113 and will be followed by a EUR200m
Nd-PBR facility on the same site. Completion is planned for H115.
The company has some flexibility to reduce capex should market conditions worsen
significantly. Free cash flow is expected to be mildly positive under Fitch's
base rating case. Funds from operations (FFO) net adjusted leverage is forecast
to peak at around 2.2x, from 2.1x at end-2011.
WHAT COULD TRIGGER A RATING ACTION?
Positive: Future developments that may, individually or collectively, lead to
positive rating action include
- sustained improvement in EBITDAR margin to 14%-15% across the cycle
- FFO net adjusted leverage at, or below 1.5x
- sustained positive free cash flow generation
Negative: Future developments that may, individually or collectively, lead to
negative rating action include
- continued negative free cash flow generation
- FFO adjusted net leverage above 2.0x on a sustained basis.
For all of Fitch's Eurozone Crisis commentary go to here
(Caryn Trokie, New York Ratings Unit)