Moody affirms LafargeHolcim's rating at Baa2

Financial analysts Moody has today affirmed the Baa2 long-term and Prime-2 short-term ratings for LafargeHolcim Ltd (LH) and its rated subsidiaries and changed the outlook to "negative" from "stable".

"The outlook change to negative from stable on LafargeHolcim's Baa2 ratings follows weaker than expected operating performance during 2015, a challenging outlook for several of the group's major markets and execution risks related to the timing of its ambitious disposal programme," says Falk Frey, senior vice president and lead analyst at Moody's for LafargeHolcim.

"It reflects the risks associated with a successful recovery of LH's financial metrics to the levels more commensurate for the Baa2 rating over the course of 2016," he added.

Following the merger of building materials producers Lafarge and Holcim last year, the combined group's performance during 2015 was weaker than we expected, with reported operating EBITDA adjusted (excluding merger, restructuring and other one-offs) falling 10.7 per cent, being impacted both by the appreciation of the CHF as well as slower growth in some of its main operating markets, notably China, Brazil, Switzerland, Indonesia, Nigeria and Azerbaijan, as well as some delay in deleveraging.

Similarly, retained cash flow /net debt halved in 2015 (pro forma) to 10.6 per cent from levels above 20 per cent seen at former Holcim Ltd stand alone in previous years, heavily impacted by cash costs resulting from the merger and implementation costs to create the synergies identified.

Moody's ratings comes against a background of uncertainties in various markets and with weak fundamentals in a number of important countries, namely China, Brazil, India and France.

Moreover, the analysts claim that a successful execution of LHs plan to sell CHF3.5bn of assets (of which more than CHF1bn was announced in March) is essential for the company to materially strengthen its financial profile in the current fiscal year. However, this may prove to be difficult, Moody said. The company has set itself an ambitious timeline and may not achieve all its sales price targets.

Moody's also suggests that achieving the total amount of identified synergies might take longer than expected.