Fitch Ratings has affirmed HeidelbergCement’s Long-term Issuer Default Rating (IDR) at ’BB+’ and Short-term IDR at ’B’. The Outlook on the Long-term IDR is Stable.
Simultaneously, the agency affirmed the senior unsecured rating of HC’s related entities, HeidelbergCement Finance BV, Hanson Ltd and Hanson Australia Funding Ltd. at ’BB+’.
The affirmation and Stable Outlook reflect the company’s good performance in 9M11, with a solid top-line increase (+8.4% in 9M11) and a progression of EBITDA (+2.4% yoy), despite some pressure on margins.
"Fitch expects that HeidelbergCement will continue deleveraging and gradually improve its credit metrics," says Lorenzo Re, Director in Fitch’s Corporate team. "Cost inflation and less favourable price trends are putting pressure on margins. However, thanks to cost-cutting measures and to the increase in cement volumes sales, the agency expects that HeidelbergCement will be able to maintain or slightly improve EBITDA in both 2011 and 2012."
The expected increase in capex and the working capital absorption should cause free cash flow to decline compared to 2010. However, Fitch forecasts total net debt will also decline, albeit at a slightly slower pace than previously anticipated. Credit metrics are forecasted to further improve slightly and to remain comfortably within the level acceptable for the current ’BB+’ rating. In particular, Fitch expects funds from operations (FFO) adjusted net leverage to remain below 4.5x in both 2011 and 2012.
Fitch’s latest forecasts for HC assume tough market conditions in mature markets, namely western Europe and North America where the agency is not anticipating any significant recovery in the next 12-18 months. The agency expects a single-digit revenue increase in both 2011 and 2012, mainly driven by volume increases in emerging markets, especially eastern Europe. Pressure on margins is expected to persist in 2012.