Fitch revises Votorantim Cimentos' outlook to stable

Fitch Ratings has affirmed Votorantim Cimentos SA's (VCSA) Long-Term Foreign- and Local-Currency Issuer Default Ratings at 'BBB-' and revised the rating outlook to ‘stable’ from ‘negative’. The change in outlook mirrors that made to VCSA's ultimate parent, Votorantim SA (VSA).
 
VCSA accounted for 55 per cent of VSA's EBITDA during 2020 and 46 per cent of its debt. These figures compare with 45 per cent of EBITDA in 2019 and 53 per cent of the group's debt. Fitch noted that: "Although there is decentralised treasury and management between VSA and its subsidiaries, VSA has moved cash among the group or reduced upstream dividend flows when necessary to bolster the credit profiles of its key subsidiaries."
 
The rating's agency also cited the recovery in Brazilian cement consumption, which rebounded to 54Mt in 2019 and then grew to 60Mt in 2020 due to increased spending on home improvement as well as hard asset investment in light of low interest rates and a sharp currency depreciation. The long-term performance of the Brazilian economy will be the main driver of long-term demand as roughly 60 per cent of demand depends on self-construction.
 
In North America, Fitch underlined that cement demand in the Great Lakes Region should face modest pressure in 2021, with construction spending declining in the US and Canada due to the slowdown in construction starts in commercial and industrial construction during 2020. "However, recovering economic growth should support increasing investment in 2022 and 2023. Strong residential demand has been a supportive driver and the long-term demand drivers remain favourable."
 
In terms of VCSA's stronger cash flow, Fitch said EBITDA rose to US$689m (BRL3.5bn) in 2020 from US$498m in 2019 and US$601m in 2018, mainly due to strong cement demand in Brazil and cost reductions across VCSA's portfolio. EBITDA is projected at slightly above US$700m in 2021 and 2022 as consolidated cement demand is expected to remain relatively stable and costs should return to more normal levels, the report added.