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Baxi denies profit wipeout

The Baxi Group has hit back at an article published in the Sunday Times claiming the company is under “severe strain as the credit crunch spreads to the wider economy”. The article reported that Baxi “has seen profits wiped out in the first quarter of this year and debts mount up”.

Baxi denied this was the case. “The Baxi Group has had a positive start to the year and we were surprised to see such misleading comments,” Baxi said in a statement.
“Our net external debt at March 2008 was £490 million, compared to £523m in March 2007, and all scheduled debt repayments have been made during this period.

“In our most recent results announcement and conference call to bondholders, we also disclosed a 48 per cent increase in profitability, with underlying operating profits for the four months to April 2008 of £19.6m versus £13.2m for the first four months of 2007.”

The Sunday Times' article was written on the back of an announcement by Standard & Poor’s (S&P) that it was lowering its long-term corporate credit rating on Baxi Holdings to ‘B-’ from ‘B’. The credit ratings agency said the downgrade reflected Baxi’s weak credit protection measures and further weakening business conditions.

S&P described its outlook as negative and also lowered the debt rating on the £100 million mezzanine notes issued by finance subsidiary Heating Finance in November 2007, guaranteed by Baxi and other subsidiaries to ‘CCC’ from ‘CCC+’.

In November, Baxi received a £40m equity injection by its shareholders after it renegotiated the terms of its £515m debt obligations.

Andres Albricci, an S&P credit analyst, explained: “The downgrade reflects the deterioration of the company’s credit metrics in 2007 and continuation at a weak level in the first quarter of 2008, and should be seen in the light of persisting difficult market conditions in its key markets.

“The economic slowdown is likely to affect demand, as cost inflation and adverse foreign exchange rate fluctuations add further pressure.  As a result, we have concerns over Baxi’s liquidity position and the tightening headroom under certain financial covenants.”