HeidelbergCement AG

The outlook is positive because we may raise the ratings if the company's funds from operations (FFO) to debt comfortably exceeds 25% on a sustainable basis and the adjusted EBITDA margin remains at least at current levels. We would likely raise the rating if the group progresses on its trajectory of resilient cash flow generation and debt reduction in 2019-2020. Still positive, albeit reduced, economic growth and favorable prices in Europe and the U.S, and improving operating conditions in Southeast Asia should support the group's operating performance. In the short term, the group should also benefit from more favorable energy prices and weather conditions than 2018. In addition, we believe the group's ongoing portfolio optimization and resulting noncore asset disposals

...HeidelbergCement AG's financial policy has become more conservative over the past few years. Since 2015, the group has shown a clear deleveraging trend. Management set a new leverage target in June 2018 of reported net debt to EBITDA below 2x or net reported debt below 7 billion by year-end 2020, before International Financial Reporting Standards (IFRS) 16. Those targets are significantly healthier than the 2.6x and 8.7 billion in 2017, and 2.7x and 8.4 billion in 2018. Furthermore, management has stated its willingness to reach a more comfortable position within the investment-grade rating category ('###'). The company has resilient cash flows. HeidelbergCement's cash conversion rate--that is the ratio of reported FOCF to reported EBITDA--is better than cement peers' at 42% in 2018. This is because of disciplined working capital management and lower provision and restructuring costs. Furthermore, HeidelbergCement has shown discipline when deciding on capital expenditure (capex), which...

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