Fitch Ratings says today that although the majority of Fitch-rated European building materials (EBM) issuers have negative outlooks, the expectation of a gradual improvement in credit metrics during the next 24 months could lead to a stabilisation of most rating outlooks. However, Fitch notes the continuing risk of a slower-than-anticipated improvement in credit profiles, should the recovery in general economic activity prove to be more anaemic than presently expected by the agency. Fitch expects mature markets to continue to be weak while emerging markets will continue to grow, although regional differences are notable in all markets.
"Fitch expects the absolute amounts of cash flow from operations in 2010 to continue to be lower than 2007/2008 peaks by about 30% due to still low volumes sold and despite cost containment measures," say Elisabetta Zorzi, Senior Director in Fitch’s European Corporates group, "However, capex containment, which for EBM rated entities in 2009 was about 35% on average lower than in 2008, and lower dividends expected in 2010, should result in the average 2010 free cash flow margin being higher than the five year historical average."
The Fitch rated universe of EBM issuers includes CRH plc (’BBB+’/’F2’/Negative), Compagnie de Saint-Gobain (’BBB+’/’F2’/Negative), HeidelbergCement AG (’BB-’/’B’/Positive), Holcim Ltd (’BBB’/’F2’/Negative) and Lafarge SA (’BBB-’/’F3’/Negative). All these global players have operations in numerous countries, with Holcim and Lafarge deemed by Fitch to have above-average geographical diversification.
Absolute debt levels are expected to have notably declined in 2009 compared with 2008, partly due to equity injections carried out by almost all the rated companies. However, in the absence of extraordinary inflows such as disposals, Fitch expects debt reduction to be modest in 2010, resulting in only a slight improvement in leverage ratios. The agency believes that issuers that continue to rely on divestments to reduce their debt levels, such as HeidelbergCement AG and Lafarge, might continue to face challenging M&A markets due to the persistent tight credit environment, although Fitch notes that Lafarge has achieved to date 75% of its stated disposal target (EUR1bn) for 2009.
Liquidity for rated EBM companies is expected to remain satisfactory, supported by adequate cash balances and sufficient existing credit lines to cover debt maturities until FYE10. During 2009 EBM issuers have actively accessed the debt capital markets to refinance existing debt, partially replacing bank debt, and to extend their average debt maturity. The total value of bonds issued in the capital markets was over the equivalent of EUR10bn (about EUR3.6bn in 2008). This total issuance included: HeidelbergCement AG with EUR2.5bn issued in October, which it used to partially refinance the sizeable December 2011 EUR8.7bn Hanson acquisition loan; Lafarge with an aggregate equivalent of EUR3.1bn; Saint-Gobain with a total of EUR1.75bn (January and May); Holcim with over CHF3.2bn and CRH with EUR750m (May).