Rating Agency News

Rating Agency News
Published: 09 October 2003

S&P revises outlook on Portugal's Cimpor to negative following a continued downturn in the local cement market.

Rating agency Standard & Poor's Ratings Services said on October 8, 2003 it had revised its outlook on Portuguese cement maker Cimpor-Cimentos de Portugal to negative from stable, following a continued downturn in the local cement market. Along with this, Standard & Poor's affirmed its BBB+ long-term corporate credit rating on the cement group. The rating on Cimpor continues to reflect the group's above-average operating margins, strong market positions, good degree of geographic diversity, and moderate financial profile, which translate into solid and consistent free cash flow generation, Xavier Buffon, credit analyst with Standard & Poor's, said.

These strengths are tempered, however, by Cimpor's significant exposure to individual markets, particularly Portugal, which accounted for 43 pct of earnings before interest, tax, depreciation and amortisation (EBITDA) in the first half of 2003 and Brazil with 23 pct of EBITDA, Buffon said. Cimpor's performance was hardly hit by a sharp depression in its domestic cement market in the first half of 2003, and by a severe depreciation of the Brazilian real combined with a stronger euro, the ratings agency said, adding that the Portuguese cement market shrank by 20 pct in the first six months of 2003.

Nevertheless, Standard & Poor's said it was concerned that any prolonged downturn in Cimpor's domestic market could prevent cash flow protection measures from recovering to more adequate levels. While a further moderate decline of the domestic market is unlikely to materially affect Cimpor's creditworthiness, a continuation of the double-digit drop in cement volumes so far seen in 2003 could have a more material effect on credit quality. (Original news report from AII Data Processing Ltd.)