Frankfurt am Main, March 18, 2019 -- Moody's Investors Service ("Moody's") has today
affirmed LafargeHolcim Ltd's (LafargeHolcim) long term and short
term issuer rating at Baa2 and P-2 respectively. The agency
has also affirmed the senior unsecured, the subordinate and other
short term ratings of LafargeHolcim Ltd's and its subsidiaries at
Baa2, Ba1 and P-2 respectively. The outlook has been
changed to stable from negative.
RATINGS RATIONALE
Today's rating action was prompted by a solid operating performance
of LafargeHolcim in 2018 against a difficult market environment and the
announcement of financial policy measures that will support the improvement
of the group's credit profile in 2019 by temporarily reversing aggressive
shareholder payouts in the past.
LafargeHolcim posted a 5.1% increase in like-for-like
revenues in 2018 and a 3.6% increase in recurring EBITDA
with an acceleration in H2 2018 and a solid finish to the year,
which bodes well for a good start into calendar year 2019. LafargeHolcim's
operating performance was achieved against difficult market conditions
with material cost energy inflation and harsh weather conditions in North
America and Europe in early 2018. However, the credit profile
of LafargeHolcim improved only slightly in 2018, held back by still
high restructuring charges of CHF300 million charged to the P&L,
negative currency effects and the group's high dividend payout.
Leverage as measured by Moody's adjusted Debt/EBITDA dropped to
3.7x in 2018 from 4.0x in 2017. Moody's adjusted
Retained Cash Flow / net debt improved to 19.1% in 2018
from 17.4% in 2017.
LafargeHolcim's credit profile should further improve in 2019 supported
by a still positive market backdrop (easy comparison basis in H1 and lower
energy / currency headwinds at current spot rates) and the scrip dividend
announced at the full year 2018 results presentation. On a 2018
proforma basis, assuming a take up of around 50% in shares
on the offered scrip dividend, LafargeHolcim's RCF/net debt
ratio would improve by approximately 400bps to approximately 23%-24%,
and it will improve LafargeHolcim's free cash flow generation (Moody's
definition) by roughly CHF 600 million. FCF has been weak in the
past, to a large extent driven by the high dividend payout and high
capex. Coupled with the closing of the sale of the group's
Indonesian operations for an EV/EBITDA of around 14x, we estimate
a pro-forma 2018 RCF/net debt of around 25% and a Moody's
adjusted Debt/EBITDA ratio of 3.4x (assuming the application of
cash proceeds to gross debt reduction).
Looking at 2019, Moody's expects LafargeHolcim's leverage
as measured by Moody's adjusted Debt/EBITDA to trend slightly above
3.0x supported by a recurring EBITDA growth of 3% to 5%
and a normalization of restructuring charges. RCF / net debt should
improve from 19.1% towards 25% flat against the pro-forma
2018 ratio of 25% calculated above.
Year-end 2019 expected ratios should offer LafargeHolcim a sufficient
buffer against a potentially more challenging market environment in 2020
hence the stabilization of the outlook. However we remain wary
that some of the cushion built into the credit metrics is directly related
to the scrip dividend that is not a permanent reduction in the company's
dividend. Given current growth perspective, the company's
payout ratio may remain significantly above that of its peer group for
several years, assuming the dividend of CHF 2 per share remains
unchanged. For memory the dividend payout ratio for 2019 will be
around 75% of 2018 net income attributable to common shareholders
and around 38% taking into account a 50% scrip take up.
As such the maintenance of a sufficient buffer for the current rating
might be predicated on maintaining the scrip dividend beyond 2019.
LIQUIDITY
Moody's regards LafargeHolcim's liquidity profile as strong. At
31 December 2018, the group's liquidity position consisted of CHF2.5
billion available cash & cash equivalents and approximately CHF6.2
billion availability under committed credit lines with no financial covenants.
Moody's notes, however, that a portion of the group's cash
balance is not immediately available as it is constrained in fully consolidated
but not fully owned subsidiaries or in countries with limitations on the
transfer of foreign currency (e.g. China or Egypt).
Even excluding that effect, LafargeHolcim's cash sources together
with its funds from operations and the expected cash inflows resulting
from the asset disposals and considering the balanced maturity profile
should be more than sufficient to cover cash outflows such as debt repayments,
capex, working capital changes and dividends during the next 12
months.
WHAT COULD CHANGE THE RATING UP / DOWN
The rating could be upgraded if retained cash flow/net debt were to reach
at least 25% and debt/EBITDA were to drop to below 3.0x
on a sustainable basis.
The current rating would come under pressure if LafargeHolcim failed to
maintain retained cash flow/net debt of at least 20% on a sustainable
basis and to maintain leverage below 3.5x.
LIST OF AFFECTED RATINGS:
..Issuer: Holcim Capital Corporation Ltd.
Affirmation:
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed Baa2
Outlook Action:
....Outlook, Changed To Stable From
Negative
..Issuer: Holcim Finance (Australia) Pty Ltd
Affirmations:
....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 Action:
....Outlook, Changed To Stable From
Negative
..Issuer: Holcim Finance (Belgium) S.A.
Affirmation:
....BACKED Commercial Paper, Affirmed
P-2
..Issuer: Holcim Finance (Luxembourg) S.A.
Affirmations:
....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
Outlook Action:
....Outlook, Changed To Stable From
Negative
..Issuer: Holcim Overseas Finance Ltd.
Affirmation:
....BACKED Senior Unsecured Regular Bond/Debenture,
Affirmed Baa2
Outlook Action:
....Outlook, Changed To Stable From
Negative
..Issuer: Holcim US Finance S.a r.l.
& Cie S.C.S.
Affirmations:
....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 Action:
....Outlook, Changed To Stable From
Negative
..Issuer: Lafarge SA
Affirmation:
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa2
Outlook Action:
....Outlook, Changed To Stable From
Negative
..Issuer: LafargeHolcim Finance US LLC
Affirmations:
....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 Action:
....Outlook, Changed To Stable From
Negative
..Issuer: LafargeHolcim Ltd
Affirmations:
.... LT Issuer Rating, Affirmed Baa2
.... ST Issuer Rating, Affirmed P-2
....Other Short Term, Affirmed (P)P-2
....Senior Unsecured Medium-Term Note
Program, Affirmed (P)Baa2
....Senior Unsecured Regular Bond/Debenture,
Affirmed Baa2
Outlook Action:
....Outlook, Changed To Stable From
Negative
..Issuer: LafargeHolcim Sterling Finance (Netherlands)
Affirmations:
....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
The principal methodology used in these ratings was Building Materials
Industry published in January 2017. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
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 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.
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.
Stanislas Duquesnoy
VP - Senior Credit Officer
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