Fitch Ratings has revised Holcim Ltd’s (Holcim) Outlook to Stable from Negative. The agency has simultaneously affirmed the Swiss building materials company’s Long-term Issuer Default Rating (IDR) and senior unsecured ratings at ’BBB’ respectively. Holcim’s Short-term IDR has been affirmed at ’F2’. Fitch has also affirmed the senior unsecured rating of Holcim subsidiary Aggregate Industries plc (AI) at ’BBB’.
The Outlook change reflects Fitch’s view that Holcim’s credit metrics will show a gradual improvement in the coming 24 months, placing them more comfortably within the range of a ’BBB’ rating. Trading conditions in the construction industry are likely to remain challenging in mature markets, especially in western Europe, while growth is expected to persist in major emerging countries. However, Fitch expects the positive impact on free cash flow (FCF) generation from cost reduction measures, lower capex - as a result of the phasing out of major investment projects - and a conservative dividend policy, will enable Holcim to progressively improve its financial metrics at a somewhat faster pace than previously anticipated by the agency.
Fitch’s latest assumptions for Holcim include a decline in revenue in 2009, and single digit increase in 2010. A positive single-digit FCF margin is expected from 2010, when capex materially declines. The agency expects net leverage at FYE09 to be higher than FYE08 (2.8x), and believes that Holcim will achieve a gradual deleveraging with net leverage below 2.6x by FYE11 due to FCF generation over the next 24 months.
Holcim’s ratings continue to reflect its strong market positions in cement, aggregates and concrete, and its complementary product portfolio. The group has solid geographical diversification, with deep penetration in growing emerging markets, which are typically higher-margin although they can be more volatile on an individual basis. The company’s cash flow margin (CFO/revenue) and operating EBITDA margin, while showing some signs of weakening compared with historical performance, remain above the sector average. The group undertook a number of refinancing activities during 2009 to lengthen its average debt maturity, and raised about the equivalent of CHF5bn in the debt capital markets. Fitch considers Holcim’s liquidity as satisfactory, as it is supported by high cash balances and committed credit lines.