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3Q12 – The Independent View

World Cement,

With the 3Q12 results coming in from many companies, Fitch Ratings has delivered a report on the situation of the cement market, focussing on three of its biggest players.

Fitch Ratings has said that the results reported by Holcim Ltd ('BBB'/Stable), HeidelbergCement AG ('BB+'/Stable) and Lafarge SA ('BB+'/Stable) showed a number of positives, but confirmed that general market conditions are still challenging and the outlook remains uncertain.

In general, cement producers were able to improve profitability thanks to a better price environment and to the effects of cost cutting measures that now beginning to deliver material savings. The reduction in capital expenditure for maintenance (partly due to lower utilisation of plants in Europe) and the prudent approach to capital expenditure for expansion purposes boosted cash generation and debt reduction. This constant deleveraging process is reflected in Fitch's stable outlook for all the main ratings in the sector.

Fitch believes the outlook will remain uncertain: European markets will, in all likelihood, continue to remain weak, with volumes declining further still. While the US market recovery could prove fragile, demand in emerging countries is expected to remain solid. However, cost inflation will persist in 2013, although energy price increases are likely to be lower compared to 2012, and cement producers will need to further increase prices to defend margins. On the positive side, the effect of cost cutting measure should become more and more visible. In such a scenario, Fitch expects a modest improvement in operating performance in 2013.

Adapted from news source by Jack Davidson.

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