HeidelbergCement Debt Falls Below 7 Billion-Euro Mark

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HeidelbergCement AG, which financially crippled itself with the 2007 purchase of Hanson Plc, cut debt to below 7 billion euros ($7.9 billion) for the first time since its largest-ever acquisition, and indicated that construction markets are on the up.

Borrowings are poised to fall further after the world’s third-biggest cement maker completes the $1.4 billion sale of its brick and roof-tile business to Lone Star Funds, taking Chief Executive Officer Bernd Scheifele a step closer to regaining investment-grade credit status. Debt at the end of September stood at 7.6 billion euros.

“We will continue with our successful strategy of adding value by means of debt reduction and growth, as well as keep our focus on improving our operating efficiency and margins,” Scheifele said in a statement. “Considering the positive outlook for the global economy and our advantageous geographical positioning, we are confident about the future.”

Scheifele remains one level away from regaining investment-grade credit ratings. The onset of the global recession in 2008 caused a near 100 percent drop in profit, yet HeidelbergCement said European construction markets are now stabilizing.

The company’s debt is graded Ba1, the highest junk rating, by Moody’s Investors Service and the equivalent BB+ at Fitch Ratings. Both credit rating companies have a stable outlook on the debt.

Cash Flows

The “improved net debt points to solid cash flows and suggests that the company will reach its medium-term debt target within 2015,” London-based analysts at Sanford C. Bernstein including Phil Rosenberg, said in a note to clients. “This is below our estimate of 7.2 billion euros.”

HeidelbergCement is seeking net debt representing 2.9 times earnings before interest, taxes, depreciation and amortization. The shares were little changed at 65.89 euros as of 9:06 a.m. in Frankfurt, valuing the company at 12.4 billion euros.

Operating income before depreciation increased 1.7 percent to 625 million euros in the fourth quarter, buoyed by the recovery of U.S. residential construction, the Heidelberg, Germany-based company said. That compared with an analyst consensus estimate of 629 million euros gathered by the company itself, and a 681 million-euro average in a Bloomberg survey. Revenue rose 6.4 percent to 3.3 billion euros, in line with Bloomberg estimates.

Profit jumped 17 percent to 161 million euros in North America and 10 percent to 221 million euros in Asia, offsetting declines of 7.2 percent and 43 percent in western and eastern Europe respectively.