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Rating Action:

Moody's affirms Holcim's Baa2 rating; changes outlook to positive from stable

30 Aug 2021

NOTE: On September 14, 2021, the press release was corrected as follows: In the List of Affected Ratings, the list of Affirmations and Outlook Actions were changed to include:

Affirmations:

.. Issuer: Holcim US Finance S.a r.l. & Cie S.C.S.

....BACKED Commercial Paper, Affirmed P-2

....BACKED Other Short Term, Affirmed (P)P-2

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

....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

Outlook Actions:

..Issuer: Holcim US Finance S.a r.l. & Cie S.C.S.

....Outlook, Changed To Positive From Stable. Revised release follows.

Frankfurt am Main, August 30, 2021 -- Moody's Investors Service ("Moody's") has today affirmed Holcim Ltd's ("Holcim") long term and short term issuer rating at Baa2 and P-2 respectively. The rating agency has also affirmed the senior unsecured, the subordinate and other short term ratings of Holcim Ltd and its subsidiaries at Baa2, Ba1 and P-2 respectively. The outlook has been changed to positive from stable.

A full list of affected ratings can be found at the end of this press release.

RATINGS RATIONALE

Today's rating action reflects the company's solid operating performance in 2020 against the backdrop of the global coronavirus pandemic and its so far strong recovery in 2021. Moody's believes that market fundamentals for the construction industry will remain positive in the next 12-18 months, supported by accelerating global economic activity, accommodative monetary policies of the world's main central banks retaining mortgage rates low in major currencies and state-funded stimulus programs supporting the demand across Holcim's main markets.

Holcim's key credit metrics have been relatively strong before Covid and remained so despite earnings deterioration in 2020, cushioned by both gross and net debt reduction thanks to solid free cash flow generation. Once market confidence returned, the company shifted its attention from liquidity preservation to active portfolio reshuffling. The $3.4 billion acquisition of Firestone Building Products, the US-based manufacturer of roofing systems earlier this year, was a major step in increasing the share of Solutions & Products segment within Holcim's structure.

At the same time, earnings recovery in the first half of 2021 kept credit metrics again virtually flat despite higher debt load post the Firestone acquisition. With Moody's adjusted gross debt/ EBITDA LTM of around 3x and retained cash flow/ net debt of around 27% in H1 2021, Holcim's metrics are strong in context of quantitative rating triggers -- gross leverage within 3-3.5x range and RCF/ net debt within 20-25%. Moody's expects that in light of positive market fundamentals Holcim's metrics will continue improving in the next 12-18 months and would cope well with the higher rating. We also note the company's commitment to net leverage (company defined) below 2x at all times and the recent evidence of holding it well below that level.

However, we believe that event risk for further M&A but also disposals will remain high considering that the group intends to accelerate rotation into less capital-intensive and less ESG-exposed Solutions & Products segment while reducing its share of cement, especially in less predictable and volatile Emerging Markets. Timely asset disposals, solid FCF generation and a further evidence of conservative balance sheet management in line with a track-record of recent years (scrip dividends, hybrid bonds issuance) can mitigate the negative impact of acquisitions on Holcim's credit profile. Moody's considers including a sizeable acquisition capacity into Holcim's rating.

Holcim's rating is mainly supported by (1) the group's position as a global leader in four business segments: cement, aggregates, ready-mix concrete and solutions & products; (2) excellent geographic diversification, with a truly global footprint around 70 countries; (3) relatively conservative financial policy, focused on free cash flow (FCF) generation; (4) favorable construction outlook across major markets supported by stimulus programs in various regions and (5) strong credit metrics for the existing rating despite the coronavirus pandemic and the recent $3.4 billion acquisition of Firestone in the US.

However, the rating is constrained by (1) its exposure to the cyclicality of construction end-markets; (2) event risk related to further large-scale acquisitions because of the company's intention to reduce the share of cement while increasing the contribution from the Solutions & Products segment; (3) its relatively sizable dividend distribution of around CHF1.5 billion, including dividends to minorities; and (4) its large exposure to emerging markets, although reduced in size in last few years, which tend to be more volatile and unpredictable.

RATIONALE FOR POSITIVE OUTLOOK

The positive outlook reflects Moody's expectation that market growth continues in the next 12-18 months and will lead to further improvement in the company's credit metrics that are already strong for the current rating. This helps building a buffer against potential deterioration in case of large-scale acquisitions as the company wants to increase scale in Solutions & Products segment while reducing its cement exposure, especially in Emerging Markets.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

WHAT COULD MOVE THE RATINGS -- UP

Positive rating pressure could arise if:

• Moody's adjusted retained cash flow (RCF)/net debt remains sustainably above 25% and

• Moody's adjusted gross debt/ EBITDA declines sustainably below 3x

WHAT COULD MOVE THE RATINGS -- DOWN

• Moody's adjusted retained cash flow (RCF)/net debt drops sustainably below 20% or

• Moody's adjusted gross debt/ EBITDA exceeds 3.5x on a sustained basis

LIQUIDITY

Moody's regards Holcim's liquidity profile as strong. As of June 2021, the group's liquidity consisted of CHF3.5 billion of cash and cash equivalents and around CHF5.6 billion of committed credit lines, of which CHF4.9 billion were unused. The outstanding committed credit lines have no financial covenants. However, a portion of the group's cash balance is not immediately available, because it is constrained in fully consolidated but not fully owned subsidiaries or in countries with limitations on the transfer of foreign currency. Even excluding that effect, Holcim's cash sources, together with its funds from operations, should be more than sufficient to cover its regular cash outflow, such as debt repayments, capital spending, working capital changes and dividends in the next 12 months.

ESG CONSIDERATIONS

Environmental considerations are important factors for the credit analysis of Holcim. The company is exposed to strict regulations related to carbon dioxide (CO2) emissions, especially with regard to Phase IV of the European Union Emission Trading System (2021-30). However, the company is committed to reducing its carbon emissions. Its net CO2 emissions in 2020 decreased to 555 kilograms per ton of cementitious material, and the company has set one of the most ambitious target among cement producers of 475 kg by 2030. This is a 40% reduction from the level in 1990. Moreover, the company joined the Science Based Targets Initiative (SBTi) "Business Ambition for 1.5°C" and partnered with SBTi to support the development of the first climate targets for a 1.5°C future in the cement sector.

The ultimate goal is to become carbon-neutral at the level of concrete production, which in our view will require a full-scale implementation of Carbon Capture, Utilisation and Storage (CCUS). Holcim is currently piloting more than 20 CCUS projects, but it will need to continue to explore different CCUS technologies to find scalable and cost-effective solutions to meet the net zero ambition. Holcim also offers low carbon solutions and has developed an Eco Label to brand their green building materials that comply with lower CO2 footprint and recycled content criteria.

Holcim is a public company listed on the SIX Swiss Exchange and Euronext Paris, with a 92% free float, as defined by the SIX Swiss Exchange and the Euronext Paris. More than 90% of the members on its board of directors are independent. The group's financial policy follows a balanced approach for creditors and shareholders, reflected in scrip dividend payments and the hybrid bond issuance in 2019, implemented to protect and improve its investment-grade rating.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Building Materials published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158917. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

LIST OF AFFECTED RATINGS

Affirmations:

.. Issuer: Holcim US Finance S.a r.l. & Cie S.C.S.

....BACKED Commercial Paper, Affirmed P-2

....BACKED Other Short Term, Affirmed (P)P-2

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

....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: Holcim Capital Corporation Ltd.

....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: Holcim Finance (Australia) Pty Ltd

....BACKED Other Short Term, Affirmed (P)P-2

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

....BACKED Senior Unsecured Regular Bond/Debenture , Affirmed Baa2

..Issuer: Holcim Finance (Luxembourg) S.A.

....BACKED Subordinate Regular Bond/Debenture, Affirmed Ba1

....BACKED Senior Unsecured Commercial Paper, Affirmed P-2

....BACKED Other Short Term, Affirmed (P)P-2

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

....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: Holcim Ltd.

....ST Issuer Rating, Affirmed P-2

....LT Issuer Rating, Affirmed Baa2

....Other Short Term, Affirmed (P)P-2

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

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: Lafarge SA

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: LafargeHolcim Finance US LLC

....BACKED Senior Unsecured Commercial Paper, Affirmed P-2

....BACKED Other Short Term, Affirmed (P)P-2

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

....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: LafargeHolcim Helvetia Finance Ltd

....BACKED Subordinate Regular Bond/Debenture, Affirmed Ba1

....BACKED Other Short Term, Affirmed (P)P-2

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

....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

..Issuer: LafargeHolcim Sterling Finance (Netherlands)

....BACKED Senior Unsecured Commercial Paper, Affirmed P-2

....BACKED Other Short Term, Affirmed (P)P-2

....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa2

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

Outlook Actions:

..Issuer: Holcim US Finance S.a r.l. & Cie S.C.S.

....Outlook, Changed To Positive From Stable

..Issuer: Holcim Capital Corporation Ltd.

....Outlook, Changed To Positive From Stable

..Issuer: Holcim Finance (Australia) Pty Ltd

....Outlook, Changed To Positive From Stable

..Issuer: Holcim Finance (Luxembourg) S.A.

....Outlook, Changed To Positive From Stable

..Issuer: Holcim Ltd.

....Outlook, Changed To Positive From Stable

..Issuer: Lafarge SA

....Outlook, Changed To Positive From Stable

..Issuer: LafargeHolcim Finance US LLC

....Outlook, Changed To Positive From Stable

..Issuer: LafargeHolcim Helvetia Finance Ltd

....Outlook, Changed To Positive From Stable

CORPORATE PROFILE

Holcim is the global leader in building materials, with 190 million tons of cement and 256 million tons of aggregates sold in 2020. Its additional activities include ready-mix concrete as well as solutions and products. For the last twelve months ending June 2021, Holcim reported revenues of CHF25 billion and CHF6.4 billion in company-defined recurring EBITDA after leases. The company is publicly listed on the SIX Swiss Exchange and Euronext Paris.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288435.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Vitali Morgovski, CFA
Asst Vice President - Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Matthias Hellstern
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

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