Fitch Affirms Holcim rating, outlook stable

Fitch Affirms Holcim rating, outlook stable
Published: 13 March 2014


Fitch Ratings has affirmed the Long-term Issuer Default Ratings (IDR) of Swiss cement major of Holcim as at BBB. The outlook is stable.

The ratings agency said the affirmation reflects Holcim's leading market positions as one of the world's largest cement producers and its improving financial profile. The group reduced leverage to 3.5x in 2013 from 4.2x in 2011 (on a fully consolidated basis), supported by in excess of CHF1bn in non-core net asset disposals over the past two years. Earnings recovered in 2013, supported by the group's successful cost cutting programme, despite volume headwinds. "We expect further improvements in credit metrics to be mainly driven by an improvement in earnings, as free cash flow (FCF) will be somewhat constrained by higher capex compared to previous years," Fitch said in a statement.

Strong market position
Holcim's IDR reflects the company's strong market position in cement, aggregates and concrete, and its wide geographical diversification, with a presence in around 70 countries and a balanced mix between developed and emerging markets.

Difficult trading conditions
Fitch expects Holcim's earnings to be constrained by weaker trading conditions in Asia Pacific, Africa and Middle East, which are high-margin generators. This is mitigated by the earnings recovery in Europe on the back of capacity adjustments, cost cutting and efficiency measures and lower one-off restructuring costs.

Debt reduction
Holcim's credit protection metrics have improved over the past two years, supported by non-core asset disposals of in excess of CHF1bn. Funds from operations (FFO) gross leverage improved to 3.5x in 2013 from 3.8x in 2012. Fitch expects credit metrics to continue to improve, albeit at a slower pace due to a higher level of capex compared to previous years.

Cost and capex discipline
Fitch said the group is well on track to deliver a CHF1.5bn contribution to operating profit by 2014 from its successful cost cutting programme, of which more than CHF1.1bn was achieved by end-2013. In addition, management has exhibited capital discipline to reign in capex when necessary, in light of the ramp up in 2013. Expansion capex contributed nearly two thirds of total capex in 2013. "We expect the group to transition towards a more even split in the medium- to long-term, as maintenance capex is gradually being restored to above CHF1bn," Fitch states.

Indian JV restructuring
Holcim's plans to restructure its Indian JVs are considered to be credit positive. Holcim will streamline its holdings in ACC Ltd (ACC) and Ambuja Cements Ltd (ACL), creating a pan-Indian group that will benefit from supply chain and fixed cost synergies. As part of the transaction, the group will effectively upstream around US$600m in cash to the holding and ACL will issue around USD1.4bn of shares to Holcim.

Solid liquidity
Holcim maintains its prudent liquidity policy. The group had CHF7.2bn of liquidity at end-2013, consisting of CHF2.2bn cash and CHF5.0bn of undrawn committed lines compared with short-term debt maturities of CHF2.9bn in 2014. Internal and external liquidity ratios are commensurate with an 'F2' Short-term IDR.