Fitch affirms Lafarge's BB+ rating, France

Fitch has affirmed at BB+ the long-term issuer default rating (IDR) of Lafarge as well as its senior unsecured rating. The long-term IDR's outlook is stable.

The affirmation reflects Fitch's expectation that Lafarge will be able to deleverage quickly in 2013 reaching credit metrics in line with the current rating, despite debt in 2012 being higher than Fitch's expectations and leverage being stretched for the current rating level. Recovery in the US, positive trends in emerging markets and ramp-up of cost-cutting measures should sustain margins, despite the western European market remaining very difficult. The revamping of the disposal process should support debt reduction.

Accelerating cost cutting

The measures adopted by Lafarge to gain efficiency are gaining traction and should deliver EUR600m additional EBITDA in 2013, including the expected contribution of innovation initiatives. Eased cost inflation and a positive trend on pricing in most markets should also support margins. Fitch expects part of these benefits to be offset by lower volumes in western Europe but operating performance to improve, with EBITDA growth at mid-single digit rates in both 2013 and 2014.

Capex strictly managed

As part of its cash preservation strategy, Lafarge has reduced its capex in the past few years to less than EUR800m in 2012 through a combination of reduced maintenance capex and an extremely prudent expansion policy. The capex target for 2013 is EUR800m, although this level could be exceeded if divestments support it. Fitch expects capex to remain tight in 2014 at EUR1.0bn-EUR1.1bn, while growth in cement markets in emerging countries could drive an acceleration in expansion capex from 2015.

Disposals back on track

Following a slowdown in 2012, when proceeds from non-core assets sales were only EUR400m compared with a EUR1.0bn target, the disposal process has been revamped in 2013. Circa EUR1.0bn disposals have been already secured in 2013, including the US gypsum division. Disposals remain a key driver in the deleveraging process.