KEY RATING DRIVERS
Faster than Expected Improvement in Credit Metrics
Usiminas' continued focus on cost cutting combined with an improvement in
Expectation of Normalization in 2014
Fitch projects Usiminas will achieve total adjusted debt-to-EBITDA and net adjusted debt-to-EBITDA ratios of 3.0x and 1.4x in 2014 with steel imports expected at normalized historical levels due to the continued devaluation of the Brazilian Real, and steel import tariffs of 12%. As a result of its effective turnaround, the company has positioned itself back in line with historical profit margins and gross debt of
Successful Undertaking of Cost Efficiency Measures
Usiminas took proactive steps during 2013 to effectively lower its costs and make it more competitive in the steel industry. The company reduced its SG&A expenses, abated its reliance on iron ore from 3rd parties, focused on domestic sales instead of exports, and reduced its use of higher cost raw material inputs in steel production. These initiatives coupled with price increases during 2013 strongly improved Usiminas' margins, and thus returned the company back to historical profitability in the competitive flat steel market.
Return to Historical Profitability
Usiminas reported strong financial results for 2013 which were an improvement from the nadir of 2012 and more consistent with the company's past performance. Adjusted EBITDA improved 159% to
Continued Cash Flow Recovery
2013 cash flow from operations (CFFO) was
Solid Liquidity Position Maintained
Usiminas has no liquidity issues and benefits from a comfortable debt amortization profile as of
Normalized Steel Imports Allows Stronger Pricing
The flood of steel imports into
Fitch could downgrade Usiminas' ratings if its credit metrics and cash flow generation undergo a sustained level of deterioration as experienced in 2012, with Net Adjusted Debt to EBITDA above 3.5x and/or FFO Fixed Charge Coverage ratio below 3.5x. A downward pressure on the company's operating environment, appreciating Real, increase in steel imports, and/or significant acquisitions could result in a deterioration of the company's comfortable liquidity position and result in a weakening of the company's capital structure.
While a positive rating action is unlikely in the near term, Fitch could upgrade Usiminas if the company sustains strong positive Free Cash Flow, achieves Net Adjusted Debt to EBITDA below 1.2x and/or FFO Fixed Charge Coverage ratio above 9.0x combined with a fundamental shift in product diversification.
Fitch has affirmed the credit ratings of Usiminas as follows:
-- Foreign currency IDR at 'BB+';
-- Local currency IDR at 'BB+'';
-- National scale rating at 'AA(bra)';
The Rating Outlook is Stable.
Additional information is available at www.fitchratings.com.
-- 'Corporate Rating Methodology' (
-- 'National Ratings Criteria' (
-- 'Evaluating Corporate Governance' (
Corporate Rating Methodology -- Effective
Evaluating Corporate Governance
Source: Fitch Ratings
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