OREANDA-NEWS. Fitch Ratings has affirmed Braas Monier Building Group S.A.'s (Braas Monier) Long-term Issuer Default Rating at 'B' with a Stable Outlook. A full list of rating actions is at the end of this release.

The affirmation reflects our expectation that Braas Monier's financial profile will remain in line with the ratings. Funds from operations (FFO)-adjusted net leverage improved to 4.0x at end-2014 from 4.8x a year earlier, as the group outperformed Fitch's previous earnings expectations and reduced debt following its IPO and the pre-payment of debt. However, we expect the free cash flow (FCF) margin to remain low and the pace of deleveraging to slow over the next 12 to 18 months. This assumes a slow recovery in end-markets and a modest ramp up in capex and acquisitions in anticipation of Europe's return to growth. We view positively management's focus on bolt-on acquisitions and its commitment to maintain net debt to EBITDA below 2x.

KEY RATING DRIVERS
Leading Market Positions
Braas Monier is a leading pan-European roofing tiles and components manufacturer. The group has a leading market share in concrete roofing tiles in most markets in which it operates, (over 50% share in some markets), and a secondary or tertiary market share in clay roofing tiles. The group also has leading positions in components and chimney and energy systems.

Slow Profitability Growth
Fitch calculated that the EBITDA margin improved to 16.1% in 2014 from 13.0% a year earlier, driven by management's successful cost-cutting measures. The group achieved this despite a prolonged downturn leading to weak volumes from slow construction activity in Braas Monier's core European markets and FX headwinds. Fitch expects future EBITDA margin improvement to be slow, with some margin-dilutive acquisitions and increases in operating costs mitigating productivity gains.

No Pressure from Acquisitions
Braas Monier's growth initiatives, including bolt-on acquisitions and capacity expansions in emerging markets, can be accommodated within its financial headroom, including its acquisition of Golden Glay Industries for around EUR23m. The acquisitions of Tejas Cobert and CT Cobert Telhas in Spain and Portugal will complement Braas Monier's footprint, with leading roof tile market shares on the Iberian Peninsula. Management also intends to use the two companies' existing distribution networks to cross-sell its components products, and further develop their export businesses.

Reduced Debt Burden
FFO adjusted net leverage reduced to 4.0x at end-2014 from 4.8x a year earlier, following the group's IPO, prepayment of debt and higher fundamental earnings. Refinancing at better terms simplified the group structure and reduced the debt service burden. We expect a slow-down in deleveraging over the coming years, assuming a slow recovery in end-markets and modest bolt-on acquisitions.

Positive FCF Generation
We expect FCF in 2015 to be positive, aided by minimal restructuring costs. However, an FCF margin in the low single digits remains a credit weakness, as slightly increased capex and dividends consume internally generated cash flow.

RATING SENSITIVITIES
Positive: Future developments that could lead to positive rating action include:
- FFO adjusted net leverage below 4.0x (FYE14: 4.0x).
- Maintaining the ability to pass on price increases and EBITDA margin in mid- to high teens (16.1% in 2014).
- FCF above 2% through the cycle (0.9% FCF margin in 2014).

Negative: Future developments that could lead to negative rating action include:
- FFO adjusted net leverage above 5.0x.
- Negative free cash flow for 18-24 months.
- FFO fixed charge cover below 2.0x (1.7x in 2014).

LIQUIDITY
Adequate Liquidity
Liquidity amounts to EUR160m and comprises a EUR100m undrawn revolver and around EUR60m in cash (adjusted for EUR120m required to cover working capital swings and restricted cash). This compares with EUR12.4m in short-term debt maturities at end-2014. Refinancing risk will only become material in 2019, ahead of its debt maturity in 2020.

FULL LIST OF RATING ACTIONS

Braas Monier Building Group S.A.
Long-term IDR: affirmed at 'B'; Outlook Stable

BMBG Bond Finance S.C.A.
Senior secured rating: affirmed at 'B+'/'RR3'

Monier Finance S.a r.l.
Senior secured rating: affirmed at 'B+'/'RR3'