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Investing.com -- S&P Global Ratings has revised its outlook on Heidelberg (ETR:HDDG) Materials to positive from stable, while affirming the company’s ’BBB’ credit rating.
The rating agency cited Heidelberg’s adjusted funds from operations (FFO) to debt ratio exceeding 35% since 2022 as the key factor behind the outlook change. This ratio could improve further to 45%-50% in 2025-2026 from 42.3% in 2024, driven by improving EBITDA and a stable capital structure.
Heidelberg’s company-reported leverage in 2024 remained stable at 1.2x net debt to EBITDA, below its target of 1.5x-2.0x for 2025. The company recently revised its medium-term leverage target to 1.5x by 2030, prompting S&P to revise its financial risk profile to intermediate from significant.
S&P expects Heidelberg Materials to strengthen its operating performance in 2025, projecting revenue growth of 5.0%-6.0%. This growth will be supported by acquisitions announced last year, particularly in the U.S., a gradual volume recovery in selective markets, and continued pricing discipline.
The rating agency forecasts Heidelberg’s adjusted EBITDA margin will improve to about 20% in 2025 from 19.2% in 2024. This improvement will be supported by higher operating leverage in Europe, recovery in underperforming regions such as Africa and Asia-Pacific, and a new cost efficiency program called "Transformation Accelerator," which management expects will contribute €500 million in savings by year-end 2026.
In 2024, Heidelberg Materials reported muted revenue growth, with S&P Global Ratings-adjusted EBITDA slightly higher as positive pricing offset lower volumes. High interest rates, inflation, and volatile energy prices resulted in reduced demand for building materials, especially in Europe.
S&P expects Heidelberg’s free operating cash flow to strengthen to more than €2 billion in 2025, which could cover higher shareholder distributions and contracted acquisitions. The company’s adjusted EBITDA could increase to €4.4 billion-€4.6 billion in 2025 from €4.1 billion in 2024.
Annual net capital expenditure is expected to be about €1.3 billion for 2025-2026, supporting various ongoing carbon capture, utilization, and storage projects. Contracted merger and acquisition spending is projected to reach about €1 billion in 2025.
Compared to peers, S&P views Heidelberg Materials as less diversified with a smaller absolute free operating cash flow base and somewhat higher leverage than companies like Holcim Ltd (OTC:HCMLY), CRH PLC (NYSE:CRH), and Compagnie de Saint-Gobain.
S&P could upgrade Heidelberg if the company maintains its conservative financial policy while balancing growth strategy with commitment to maintaining ratios consistent with a ’BBB+’ rating. Specifically, the agency would consider an upgrade if Heidelberg sustains an FFO-to-debt ratio exceeding 35%.
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