Moody’s Upgrades ICI Rating to Baa2/P-2; Outlook Stable
March 20, 2007
Moody's Investors Services has upgraded the senior unsecured debt rating of Imperial Chemical Industries PLC (ICI) and its guaranteed subsidiaries to Baa2 from Baa3. The short-term ratings for the guaranteed commercial paper programmes of ICI Wilmington Inc. and ICI Finance plc have also been upgraded from to P-2 from P-3. The outlook for the ratings is stable.
The upgrade follows a review initiated by Moody’s in November 2006 after ICI announced the intended sale of its flavours and fragrance business, Quest International, to Givaudan SA for £1.2 billion. The sale of Quest was completed on 2 March 2007. ICI had completed the sale of its oleochemicals business, Uniqema, for £410 million on 1 September 2006.
Standard & Poor’s rating for ICI remains unchanged at BBB outlook stable. Moody’s lead analyst for ICI, Francois Lauras, said: “The upgrade of ICI’ s ratings to Baa2/P-2 reflects the significant strengthening in the Group’s financial profile which more than offsets the reduced size and diversity of its revenue base. This divestment following shortly after the sale of Uniqema in September 2006 will move the Group’s balance sheet into a net cash position while allowing for further reduction in its historically large pension deficit.”
In its statement Moody’s also noted that despite experiencing some weakness in Paints in the North American market, the Group recently reported a robust set of results in 2006 as ICI’s continuing operations enjoyed above-GDP organic growth of 6% and largely stable underlying operating margin.
Moody’s statement concluded: “Going forward, ICI's financial performance should also benefit from management's efforts to improve operational effectiveness across the group on a sustainable basis. In this context, Moody's believes that the group has regained sufficient financial flexibility to accommodate the restructuring initiatives launched in May 2006 under its Transformation Programme while pursuing a growth strategy focused on strengthening its target market positions, capitalising on high growth emerging markets and introducing new products.
While organic growth is likely to be supplemented by acquisitions in core businesses such as coatings, adhesives and specialty polymers, Moody's expects ICI's acquisitive strategy to be measured, with annual spend kept in the low triple-digits, as management may be challenged to identify attractive assets amid its cautious approach to valuations.
As a result, Moody's believes that the group should be able to maintain fully adjusted credit metrics commensurate with a Baa2 rating, including Retained Cash Flow to Net Debt in the mid-twenties and Free Cash Flow to Net Debt in high single-digits.”
ICI Chief Executive John McAdam stated: “We are pleased that Moody’s has upgraded the ICI Group based on their comprehensive review of our current financial situation and future prospects.”