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Standard & Poor“s lowers Saint-Gobain ratings

27 May 1999: Standard & Poor“s lowered its long-term corporate credit and senior unsecured debt ratings on France“s Saint-Gobain recently to single-“A“-plus from double-“A“-minus. The senior uns…

27 May 1999: Standard & Poor“s lowered its long-term corporate credit and senior unsecured debt ratings on France“s Saint-Gobain recently to single-“A“-plus from double-“A“-minus. The senior unsecured debt rating on Saint-Gobain Nederland B.V., which is guaranteed by Saint-Gobain, was also lowered to single-“A“-plus from double-“A“-minus. At the same time, the short-term corporate credit and commercial paper ratings on Saint-Gobain were lowered to “A-1“ from “A-1“-plus. The outlook is stable. The rating action reflects the deterioration of Saint-Gobain“s financial profile – following an increase in debt beyond that which was anticipated at the former rating level – coupled with ongoing external growth and the impact of the planned 5% share capital repurchase. S&P said in a statement that the ratings on the French company reflect its well-above-average business profile, resulting from the high quality of the company“s businesses; the success experienced by the group in reducing its exposure to cyclical markets; and the ongoing strengthening of cash flow generation. These elements are offset by an increased level of net debt. With 1998 sales of FFr 117 billion (US$ 20 billion), Saint-Gobain holds European or world leadership positions in diversified sectors: glass (glass containers, flat glass, insulation, and fibre reinforcements); high performance materials (industrial ceramics and abrasives); and housing products (building materials, pipes, and specialized distribution). The group benefits from a well-diversified earnings base in terms of businesses, end markets, and geographic spread. Its exposure to cyclical markets such as construction, industrial equipment, and the automotive industry has been further reduced by ongoing substantial changes in the group“s business profile. This has also strengthened free cash flow generation (after capital expenditures) owing to the less capital-intensive nature of the newly acquired businesses. Net debt was FFr 25.5 billion at year-end 1998, up by FFr 8 billion compared with the previous year, mainly as a result of larger-than-expected external growth. As a result, net debt coverage by funds from operations declined significantly to 51% from 65% in 1997. This ratio is not expected to recover in the short term as Saint-Gobain intends to pursue its growth strategy by using free cash flow and proceeds from the progressive completion of the unwinding of its cross-shareholdings. This will reduce the group“s financial flexibility.

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