Apr 18 -
Summary analysis -- HeidelbergCement AG ------------------- 18-Apr-2012
CREDIT RATING: BB/Stable/B Country: Germany
Primary SIC: Nonmetallic
Credit Rating History:
Local currency Foreign currency
18-Mar-2011 BB/B BB/B
13-Jan-2010 BB-/B BB-/B
15-Oct-2009 B+/B B+/B
06-Mar-2009 B-/B B-/B
09-Jan-2009 B+/B B+/B
21-Nov-2008 BB-/B BB-/B
24-Oct-2008 BB+/B BB+/B
The ratings on Germany-based heavy materials group HeidelbergCement AG reflect Standard & Poor’s Ratings Service’s assessment of the group’s business risk profile as “satisfactory” and financial risk profile as “aggressive.”
In our view, HeidelbergCement will continue to deleverage and improve its credit metrics, given management’s willingness to protect profitability and allocate discretionary cash flow to debt reduction. Nevertheless, we believe that this deleveraging will occur at only a gradual pace from a low credit-measure base today. This is mainly because our outlook for the building materials sector does not anticipate a recovery before 2013.
S&P base-case operating scenario
Our base-case scenario assumes sales growth in the low- to mid-single digits in the full-year 2012, and a broadly stable group EBITDA margin. This is due to our forecast of a reduction in input cost inflation, alongside a moderate improvement in the pricing environment in 2012 and an increased contribution from the group’s U.S. operations. Nevertheless, we do not believe that the adverse market conditions and consequent weakening in credit measures in 2009 are likely to reoccur in 2012 and do not see a great risk of a double-dip recession. This is due to our view of:
-- The group’s more efficient operations to date, given substantial efficiency and cost-saving initiatives.
-- Pricing behavior that should remain rational overall, in our view, with some, but possibly not all, input cost inflation likely to be offset by price and/or surcharge amendments.
-- The group’s ongoing focus and willingness to deleverage the balance sheet further.
The group reported solid operating performance in the year ended Dec. 31, 2011, with growth in group turnover of 9.7% and moderate reported EBITDA growth of 3.6% to EUR2,321 million, mainly as a result of increased volumes. In line with our forecasts, high input cost inflation has translated into a one percentage point decline in the EBITDA margin, to 18%, compared with last year. This is despite the group’s successful cost-saving initiatives, with EUR384 million of cash savings in 2011.