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Rating Action:

Moody's affirms Wienerberger's Ba1 rating; changes outlook to stable from negative

19 May 2021

Frankfurt am Main, May 19, 2021 -- Moody's Investors Service ("Moody's") has today affirmed the Ba1 corporate family rating (CFR) of the Austrian building materials producer Wienerberger AG (Wienerberger or issuer). Concurrently, the rating agency has affirmed the issuer's senior unsecured ratings at Ba1 and the probability of default rating at Ba1-PD. The outlook has been changed to stable from negative.

RATINGS RATIONALE

Today's rating action reflects Wienerberger's relatively resilient performance in the turbulent 2020 and Moody's belief that the ongoing economic recovery with a healthy level of construction activity will allow the company to maintain financial metrics commensurate with its current rating. In 2020, Wienerberger's revenue declined by 3% while its Moody's adjusted EBITDA was down 7%, as the group's operating results in the second half of the year recovered from the Covid-induced shock in Q2 2020. However, reductions in working capital and capex resulted in a record-high level of free cash flow that reduced net debt leading to the RCF/ net debt ratio (Moody's adjusted) of approximately 33% by the year-end 2020. With that, the ratio exceeded Moody's quantitative upgrade trigger for the rating category.

The positive FCF generation together with the issuance of €400 million senior unsecured bond in May 2020 significantly improved the company's liquidity position, resulting in €666 million of cash plus €371 million availability under the committed revolving credit line by the year-end 2020 compared to €129 million of cash plus €360 million undrawn credit facility in previous year. Despite these artificially high cash balance, Wienerberger's gross leverage (as adjusted by Moody's) of 3.3x was within the 2.5x -- 3.5x range Moody's views as appropriate for the existing rating. The ratio declined to 3.1x in Q1 2021 reflecting the redemption of €215 million hybrid bonds in February 2021. Moody's thinks that earnings recovery throughout 2021 (Wienerberger guides for 7%-11% increase in its like-for-like EBITDA in 2021) will likely reduce gross leverage further down to the stronger end of the Moody's guided range for the Ba1 rating, in absence of larger M&A.

The $250 million Meridian Brick acquisition in the US (announced in December 2020, expected closing in Q2 2021) will contribute to gross leverage reduction by being largely cash-financed whereby providing additional earnings and doubling the group's exposure to the strongly performing US construction market. Though, both hybrid redemption and the recent acquisition will also reduce Wienerberger's liquidity reserve. Nevertheless, Moody's assumes that Wienerberger will continue to carefully manage its liquidity profile in light of envisaged intensified growth investments in 2021-23 and potential further acquisitions given the company's strategy to enhance organic growth through M&A.

Wienerberger's rating is supported by (1) the group's strong market position as the global leader in clay blocks and Europe's #1 producer of facing bricks, clay roof tiles and ceramic pipes; (2) reduced business cyclicality since last global crisis due to investments in pipe business, which now accounts for around 28% of the group revenue and together with Roof products (17% of revenue) has a stronger exposure to more stable renovation and infrastructure spending; (3) regional diversification across Europe (c. 90% of group sales) complemented by the revenue contribution from North America (c. 10%), which will double with the acquisition of Meridian Brick (closing expected in H1 2021); (4) the financial policy targeting a moderate level of leverage (company-defined net debt/ EBITDA ratio of below 2.5x) and (5) the overall healthy market environment for construction/ building materials in Europe and the US.

However, the rating is constrained by (1) the still high exposure to the cyclical new-build construction (around 60% of group sales); (2) the fragile, albeit improving, economic environment in light of the ongoing pandemic (3) its relatively modest size compared to major investment grade rated peers in the building materials industry; (4) its relatively aggressive, significantly increased shareholder remuneration in recent years and (5) the event risk as the company aims to enhance its organic growth with acquisitions and its leverage (1.6x in 2020, 1.9x in Q1 '21) is currently well below the self-imposed ceiling (<2.5x).

RATIONALE FOR STABLE OUTLOOK

The stable outlook reflects Moody's expectations that Wienerberger will sustain credit metrics in line with Moody's expectations for the current rating, namely gross leverage of around 3x and RCF/ net debt above 20% in the next 12-18 months. Furthermore, the stable outlook assumes that Wienerberger will maintain a good liquidity profile.

LIQUIDITY

The liquidity position of Wienerberger is good. The company had around €380 million of cash and cash equivalents at the end of March 2021 as well as €371 million availability under its €400 million revolving credit facility maturing in 2025 plus €49 million of financial assets, which could be easily liquidated. Wienerberger has a comfortable headroom under its financial covenants with reported net leverage of around 1.9x in Q1 2021 versus a 3.9x level to be in compliance with its covenant.

On the other side, the company had around €240 million financial liabilities due in 2021 as of March 2021 after having redeemed €215 million of subordinated hybrid bonds in February 2021. In addition, the group will have to pay $250 million for its acquisition of Meridian Brick, which closing is expected in the second quarter 2021. Debt maturities in 2022 and 2023 are rather limited with approximately €100 million and €80 million, respectively, whereas the larger maturities are only due in 2024 (c. €320 million) and 2025 (c. €450 million).

ESG CONSIDERATIONS

We take into account the impact of ESG factors when assessing companies' credit quality. The main environmental and social risks are not material in case of Wienerberger. The company is less exposed than cement peers to environmental risks as its production process is significantly less energy intensive than the production of cement. By 2023 Wienerberger aims to reduce its CO2 emissions by 15% compared to 2020 and to have all its new products to be designed in a way that they are recyclable and reusable. In order to achieve these goals the company plans to spend €60 million per year on ESG capex in 2021-23.

Wienerberger is a public company listed in Vienna Stock Exchange with a 100% of its shares in free float. The majority (60%) of its supervisory board members are independent. The company's financial policy targets net leverage ratio of below 2.5x (1.6x in 2020) and progressive shareholder distribution (both dividends and share buybacks) of 20-40% of free cash flow, which however excludes non-maintenance capex.

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 gross debt/EBITDA declines sustainably towards 2.5x and

• Moody's adjusted retained cash flow/ net debt sustainably above 30%

WHAT COULD MOVE THE RATINGS -- DOWN

Conversely, negative rating pressure could arise if:

• Moody's adjusted gross debt/EBITDA increasing sustainably above 3.5x and

• Moody's adjusted retained cash flow/ net debt falling sustainably below 20%

• Negative free cash flow leading to a deterioration in liquidity profile

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.

COMPANY PROFILE

Headquartered in Vienna (Austria), Wienerberger AG is the world's largest brick manufacturer and Europe's largest producer of clay roof tiles as well as a leading supplier of plastic and ceramic pipes. The group produces bricks, clay and concrete roof tiles, clay and concrete pavers as well as clay and plastic pipes in 197 plants and operates in 29 countries worldwide. In 2020, Wienerberger generated revenues of around €3.4 billion.

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_1263068.

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

Anke Rindermann
Associate Managing Director
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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