MONTERREY, Mexico--(BUSINESS WIRE)--Fitch Ratings has affirmed Elementia, S.A. de C.V.'s (Elementia) ratings as follows:
--Long-term Issuer Default Rating (IDR) at 'BB+';
--Long-term Local Currency IDR at 'BB+';
--Long-term National Scale Rating at 'A+(mex)'.
The Rating Outlook is Stable
In addition, Fitch has affirmed Elementia's Local Certificados Bursatiles due in 2015 at 'A+(mex)'.
Elementia's ratings reflect its solid business profile characterized by geographic and product line diversification, leading market shares in the regions where it has presence, supported by highly recognized brands and a well developed distribution network, positive cash generation and its shareholders' strength. Factors that limit Elementia's ratings are the company's current high leverage, industry cyclicality, input costs volatility and environmental regulation.
High Leverage Main Credit limitation:
At Dec. 31, 2011 Elementia's leverage measured by total debt to EBITDA was high at 3.1x in dollar terms, above the company's management long term target of total debt to EBITDA at or below 2.0x and Fitch's previous expectations of leverage in the upper range of 2.5x-3.0x. The company is in the process of completion of a new cement plant that is estimated to begin commercial operations at the end of this year and contributing in 2013 to the company's results. Fitch anticipates that Elementia will continue funding its future growth through a combination of internally generated cash and external financing. Fitch estimates that Elementia has flexibility to continue financing its growth strategy; however further deterioration in leverage ratios and/or debt financed acquisitions could put pressure on the company's credit profile.
Positive Cash Generation Supports the Ratings:
During 2011 Elementia generated positive Free Cash Flow (FCF) that was used primarily in capex and to strengthen its cash balance. Increased revenues across business segments in conjunction with management's strict cost and expenses control and working capital optimization initiatives allowed Elementia to increase its cash position at the end of 2011 to USD254 million from USD122 million in the past year. The company's Net Debt to EBITDA ratio improved to 1.4x from 2.8x in 2010. Fitch estimates for 2012 that the company's Net Debt to EBITDA will be in a range of 1.5x-2.0x.
Continued Business Diversification:
The company's business position is supported by its diversified revenue base. In 2011 the company generated consolidated revenues and EBITDA of USD1.17 billion and USD149 million, respectively. The metal division (mainly copper products) represented approximately 66% of consolidated sales and 44% of EBITDA, building systems (including fiber cement) contributed with 30% of sales and approximately 50% of EBITDA and plastics represented 4% and 6% respectively. Elementia's cash flow is supported by its pricing strategy, especially in the metal segment, where the company applies a cost-plus margin formula, allowing it to pass-through metal price variations to end customers. The company's strategy will continue to be focused in growth current operations and through acquisitions.
Strong Liquidity and Low Refinancing Risk:
Liquidity and refinancing risk is low. At Dec. 31, 2011 the company had a cash balance of USD254 million, short-term debt of USD12 million and total debt of USD461 million. During 2011 Elementia refinanced the bank debt through a club deal with Mexican banks for approximately MXN2.7 billion. As of March 2012 the company's short-term debt was minimal, and major maturities start in 2015 when MXN3 billion in Certificados Bursatiles come due. In 2010 the company received an equity injection of approximately USD43 million to strengthen its balance sheet.
Environmental Regulations Could Limit Operations:
The company uses chrysotile fibers (the sole form of asbestos still in use) for part of its production of fiber-cement products, which are sold locally where permitted in the North and South American regions. Products that are exported to the United States are manufactured using other fibers such as cellulose fiber and polyvinyl alcohol (PVA). The use of this fiber is in line with international standards and local environmental regulations. However, if authorities (labor, health or environmental) limit the use of this raw material in the future, or restrictions to the transport and/or imports of chrysotile are imposed, Elementia could face supply disruptions affecting selling volumes. Even though Elementia has not been subject to legal claims regarding the use of chrysotile in its products, future claims cannot be ruled out, resulting in uncertain litigation risk.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 12, 2011);
--'National Ratings Criteria' (Jan. 19, 2011).
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
National Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=595885
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