Fitch affirms HeidelbergCement’s ratings

Fitch affirms HeidelbergCement’s ratings
Published: 07 August 2014

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'.

The agency has also affirmed the senior unsecured rating of debt issued by HC's related entities, HeidelbergCement Finance BV, HeidelbergCement Finance Luxembourg SA and Hanson Ltd at 'BB+'.

“The affirmation reflects HC's investment grade business profile as the world leader in aggregates and a top three cement producer. The group weathered the downturn relatively well, thanks to its geographical diversification and limited exposure to crisis-stricken southern European and politically turbulent Northern African markets. These factors mitigate the group's current high leverage which is not commensurate with a 'BB+' rating,” Fitch said in a statement.

The Stable Outlook is predicated on Fitch’s assumption that management will apply the majority of proceeds from the disposal of its North American and UK building products business to reduce debt in line with its target of 2.8x reported net debt/EBITDA. It also reflects the rating’s agency’s expectation that HC's improved operating leverage from past years' cost cutting will benefit from the nascent recovery in construction end-markets in North America and north-western Europe.

Fitch noted that HeidelbergCement posted a strong performance in 1H14 with 11 per cent revenue and 15 per cent EBITDA growth like for like, although foreign exchange headwinds diminished actual revenue and EBITDA growth to two per cent. The operating performance was supported by mid to high single digit volume growth in all segments from increased activity in nearly all regions.

A solid operating performance in 2H14 by HeidelbergCement is expected by Fitch, based on positive demand trends in the US and in key markets in North Western Europe, including UK, Germany and Belgium.

Moreover, it highlights that HeidelbergCement cut EUR391m in cash costs in FY13, substantially exceeding management's target of EUR240m cash for the year. Since the launch of this programme in 2011, the group has achieved more than EUR1.1bn of savings against an original target of EUR600m.