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Rating Action:

Moody's affirms CRH's Baa2 rating with a stable outlook

04 Feb 2015

Frankfurt am Main, February 04, 2015 -- Moody's Investors Service, ("Moody's") has today affirmed the Baa2 long term ratings on CRH plc. (CRH) and its rated subsidiaries. The outlook remains stable.

This affirmation follows the company's announcement to acquire certain assets from Lafarge S.A (Lafarge) and Holcim Ltd. (Holcim) for an enterprise value of EUR6.5 billion. The acquisition remains subject to approval from CRH shareholders (as well as regulators) and the completion of the Holcim/Lafarge merger.

"Moody's decision to affirm CRH's rating with a stable outlook is based on our expectation that, if the acquisition proceeds, the company will be able to restore financial metrics to a level commensurate with the Baa2 rating level by 2016 helped by the equity financing portion, additional cash inflows from the ongoing disposal programme and by successfully involving partners in certain regions -- options that are being explored", says Falk Frey, Senior Vice President and lead analyst at Moody's for CRH. "An improvement in CRH's business profile mitigates the execution and integration risks of this sizable transaction spanning operations in multi countries", Frey added.

RATINGS RATIONALE

CRH has announced to have entered into a binding commitment to acquire certain assets from Holcim and Lafarge for an Enterprise Value of EUR6.5 billion. Holcim and Lafarge have to sell the assets to enable their own merger to go through.

The acquisition will be funded by a combination of new Debt (EUR3.0 billion), cash on balance sheet (EUR2.0 billion), and a 9.99% equity placing that resulted in approximately EUR1.6 billion cash receipts. The acquired assets are expected to generate 2014 revenues of EUR5.1 billion and an EBITDA of EUR752 million valuing the deal at 8.6x EBITDA. These assets include cement, aggregates ready-mix and related construction activities across four major platforms in North America, Western Europe, Central and Eastern Europe and Emerging Markets.

Moody's views the acquisition to positively contribute to the business profile of CRH as the assets are highly complementary to CRH's existing footprint and the business integrates well with CRH's existing network in North America, across Europe and Asia. The acquisition adds regional diversification and product diversification with cement as a higher margin product than aggregates and CRH's other existing products. The acquisition will double CRH's exposure to Emerging markets (Brazil, Philippines) measured by share of EBITDA contribution to the group.

Moody's does not consider that CRH has changed its financial policy and does not anticipate any such large acquisition to occur again in the next years. We also gain confidence in CRH's commitment to preserve its ratings by the decision to finance the acquisition partially with an equity contribution.

Although CRH has a solid track record of integrating numerous smaller sized acquisitions, this acquisition of multi country assets and large operations in many countries is unprecedented in CRH's history. Moody' still sees some challenges and risks that the sizable acquisition brings with it, namely (1) the challenge to integrate the multi country operations; (2) the challenge to generate the anticipated amount of synergies, anticipated to reach EUR90 million per annum after 3 years and (3) the size of the acquired assets that generate more than one quarter of revenues of the existing CRH group.

LIQUIDITY

Moody's expects CRH's liquidity profile to remain good following the acquisition with a continued coverage of the anticipated next 12 months cash needs by the available sources of cash for the same time horizon.

OUTLOOK

Despite the initial weak positioning of the rating in the Baa2 category after the acquisition, the stable outlook reflects moody's anticipation that CRH will be able to use free cash-flow and proceeds from disposals to improve financial metrics by 2016 to levels in line with the Baa2 rating category, namely Debt/EBITDA towards around 3.5x and RCF/Net debt around 20% .

WHAT COULD CHANGE THE RATINGS -- UP/DOWN

An upgrade would be considered should CRH be able to achieve an RCF/net debt ratio above 25% on a sustainable basis, which is unlikely in the foreseeable future considering the metrics after the acquisition and uncertainty in the long term given the company's strategy to seek further external growth and in view of its current dividend policy.

Negative rating pressure would build if CRH's RCF/net debt ratio would not recover to around 20% by 2016 and at least remain at that level thereafter. Any deviation from our expectation could lead to negative pressure on the current rating. Pressure on operating profitability as measured by the EBITDA margin remaining close to 10% could also lead to negative pressure on the rating.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Global Building Materials Industry published in September 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Headquartered in Dublin, Ireland, CRH is one of the world's top six building materials companies with operations spread across more than 3,400 locations in 35 countries and around 76,000 employees. The group has grown through a series of more than 700 acquisitions since 1995, predominantly financed through solid free cash flows and occasional equity issues. In 2013 CRH generated revenues of EUR18 billion.

Outlook Actions:

..Issuer: CRH America, Inc.

....Outlook, Remains Stable

..Issuer: CRH Canada Finance, Inc.

....Outlook, Remains Stable

..Issuer: CRH Finance (U.K.) plc

....Outlook, Remains Stable

..Issuer: CRH Finance Germany GmbH

....Outlook, Remains Stable

..Issuer: CRH Finance Limited

....Outlook, Changed To Stable From No Outlook

..Issuer: CRH Finance SAS

....Outlook, Remains Stable

..Issuer: CRH Finance Switzerland AG

....Outlook, Remains Stable

..Issuer: CRH Finland Services Oyj

....Outlook, Remains Stable

..Issuer: CRH Funding B.V.

....Outlook, Remains Stable

..Issuer: CRH plc

....Outlook, Remains Stable

Affirmations:

..Issuer: CRH America, Inc.

....Senior Unsecured Regular Bond/Debenture (Local Currency) Jul 15, 2018, Affirmed Baa2

....Senior Unsecured Regular Bond/Debenture (Local Currency) Jan 15, 2016, Affirmed Baa2

....Senior Unsecured Regular Bond/Debenture (Local Currency) Jan 15, 2021, Affirmed Baa2

....Senior Unsecured Regular Bond/Debenture (Local Currency) Oct 15, 2033, Affirmed Baa2

....Senior Unsecured Regular Bond/Debenture (Local Currency) Sep 30, 2016, Affirmed Baa2

....Senior Unsecured Shelf (Local Currency), Affirmed (P)Baa2

..Issuer: CRH Canada Finance, Inc.

....Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)Baa2

..Issuer: CRH Finance (U.K.) plc

....Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)Baa2

....Senior Unsecured Regular Bond/Debenture (Local Currency) Apr 24, 2015, Affirmed Baa2

..Issuer: CRH Finance Germany GmbH

....Senior Unsecured Medium-Term Note Program (Local Currency), Affirmed (P)Baa2

....Senior Unsecured Regular Bond/Debenture (Local Currency) Jan 25, 2019, Affirmed Baa2

....Senior Unsecured Regular Bond/Debenture (Local Currency) Jul 16, 2021, Affirmed Baa2

..Issuer: CRH Finance Limited

....Senior Unsecured Medium-Term Note Program (Local Currency), Affirmed (P)Baa2

....Senior Unsecured Regular Bond/Debenture (Local Currency) Apr 3, 2023, Affirmed Baa2

..Issuer: CRH Finance SAS

....Senior Unsecured Medium-Term Note Program (Local Currency), Affirmed (P)Baa2

..Issuer: CRH Finance Switzerland AG

....Senior Unsecured Medium-Term Note Program (Local Currency), Affirmed (P)Baa2

....Senior Unsecured Regular Bond/Debenture (Local Currency) Sep 30, 2022, Affirmed Baa2

..Issuer: CRH Finland Services Oyj

....Senior Unsecured Medium-Term Note Program (Local Currency), Affirmed (P)Baa2

....Senior Unsecured Regular Bond/Debenture (Local Currency) Oct 15, 2020, Affirmed Baa2

..Issuer: CRH Funding B.V.

....Senior Unsecured Medium-Term Note Program (Local Currency), Affirmed (P)Baa2

..Issuer: CRH plc

.... Issuer Rating (Local Currency), Affirmed Baa2

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Falk Frey
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Matthias Hellstern
Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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