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Rating Action:

Moody's downgrades Italcementi's rating to Baa3, outlook stable

25 Nov 2010

Approximately EUR 1.2 billion of long-term debt instruments affected

Frankfurt am Main, November 25, 2010 -- Moody's has today downgraded the long-term ratings of Italcementi, Italcementi Finance and its subsidiary Ciments Francais to Baa3 with a stable outlook. The short-term rating has been downgraded to P-3.

RATINGS RATIONALE

The rating action has been prompted by weaker than expected performance in 2010 so far, which will make it unlikely for the Italcementi group to achieve the retained cash flow to net debt ratio of above the low twenties that we require to maintain the Baa2 rating in the medium term. Per the last-twelve-months per June 2010 the adjusted retained cash flow/ net debt ratio stood at 18.6% and is expected to weaken further for the full year 2010 given the weak performance that has been reported for Q3 2010.

"In 2010 Italcementi's profitability has been very much dependent on the performance of only three markets -- France, Morocco and Egypt which accounted for around 82% of EBITDA per end of September 2010." said Matthias Hellstern, Moody's lead analyst for the Italcementi group. At the same time Egypt's performance has been weakening recently and uncertainties grow related to the Moroccan cement market with new capacity coming onstream next year. Nevertheless, Italcementi has two other significant markets in its portfolio, Italy and the US, which could contribute substantially to Italcementi's results in case of a recovery. However, due to overcapacity and the fragmentation of the cement market in Italy it also appears that prices and volumes there have been under immense pressure. Therefore Italcementi just reached break-even results on EBITDA basis in what is the company's most important market in terms of capacity and market position, as compared to a EUR 55 million EBITDA by September 2009. We do not expect this market to recover next year, and we only foresee a gradual recovery of the business in the US and in France; therefore overall profitability in 2011 might only increase slightly, with only limited free cash flow generated that could be applied to debt reduction.

So far, Italcementi has been able to partly offset the decline in operating profitability with the sale of CO2 certificates that helped improving its reported operating profit for the nine months to September 2010 by EUR 45million to EUR 303 million.

The rating action also takes into account the rising prices for electricity and fuel. In the second quarter 2010 Italcementi's costs for electricity started to exceed the prior year level with a rising upward trend. At the same time it is unlikely that the company can pass on the higher input costs in the current market environment which might put additional pressure on margins.

We believe that, even though volumes in general might show signs of stabilisation in selected mature markets, there is no visibility of a substantial rebound in 2011 given that the impact of government stimulus packages is likely to diminish in the medium term.

Due to the efforts of Italcementi group to centralise its debt structure at holding level Moody's believes that structural subordination of Italcementi's debt compared to Ciments Francais' outstanding debt will be reduced over time. Year to date the group reduced its structural subordination significantly through a bond issue by Italcementi and the repurchase of USPP notes issued by Ciments Francais but still needs to be improved further. The rating therefore takes into account the expectation that the level of subordination can be reduced further in the intermediate term. In addition, given the joint management of both Italcementi and Ciments Francais, the rating for Ciments Francais is constrained by the overall rating of the group.

The stable outlook for the group incorporates Italcementi's balanced business profile with an increasing shift of revenues to Emerging Markets, the company's conservative dividend and acquisition strategy and the management's ongoing focus on cost cutting. Moody's also takes comfort from the well-managed liquidity profile and the ongoing refinancing measures which should also help to reduce structural subordination going forward.

The short-term liquidity situation of the group is good with cash sources higher than cash uses over the next 12 months. Based on the current assumptions for operating performance in 2010 and 2011, the group also has sufficient headroom under its covenant tests.

The rating could be upgraded if Italcementi's leverage ratio, measured as debt/EBITDA would improve on a sustainable basis to around 3.5x and RCF/net debt to above the low twenties, which Moody's does not expect in the next two to three years.

Negative rating pressure could evolve if RCF/net debt would move to below the high teens for a longer period (per June 2010 18.6%). Moody's could also introduce a notching between Italcementi's and Ciments Francais' ratings should the group be unable in the intermediate term to reduce the structural subordination at Italcementi level.

Downgrades:

..Issuer: Ciments Francais

....Issuer Rating, Downgraded to P-3, Baa3 from P-2, Baa2

....Multiple Seniority Medium-Term Note Program, Downgraded to (P)P-3, (P)Baa3 from (P)P-2, (P)Baa2

....Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2

..Issuer: Italcementi Finance S.A.

....Senior Unsecured Medium-Term Note Program, Downgraded to (P)Baa3 from (P)Baa2

....Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2

..Issuer: Italcementi S.p.A.

....Issuer Rating, Downgraded to Baa3 from Baa2

....Senior Unsecured Medium-Term Note Program, Downgraded to (P)P-3, (P)Baa3 from (P)P-2, (P)Baa2

Outlook Actions:

..Issuer: Ciments Francais

....Outlook, Changed To Stable From Negative

..Issuer: Italcementi Finance S.A.

....Outlook, Changed To Stable From Negative

..Issuer: Italcementi S.p.A.

....Outlook, Changed To Stable From Negative

The principal methodology used in this rating was Global Building Materials Industry published in July 2009.

The Italcementi group, headquartered in Bergamo, Italy, is one of the top five cement producers globally, with an installed cement capacity in excess of 70 mt/year and sales of EUR 5.0 billion per December 2009.

The company's cement and clinker business which account for more than two-thirds of total sales, is supplemented by aggregates and concrete businesses. In addition to Italy, Italcementi, via its 82% owned subsidiary Ciments Français, is active in 22 countries with an emphasis on the Mediterranean basin.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

The rating has been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the three years preceding the Credit Rating Action. Please see the ratings disclosure page www.moodys.com/disclosures on our website for further information.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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Frankfurt am Main
Matthias Hellstern
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Paris
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany

Moody's downgrades Italcementi's rating to Baa3, outlook stable
No Related Data.
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