Brambles Finance Limited — Moody’s affirms Brambles’ Baa1 ratings; outlook remains stable


Rating Action: Moody’s affirms Brambles’ Baa1 ratings; outlook remains stableGlobal Credit Research – 04 Mar 2022Sydney, March 04, 2022 — Moody’s Investors Service has today affirmed Brambles Limited’s (Brambles) Baa1 long-term issuer and P-2 short-term issuer ratings. At the same time, Moody’s has affirmed the Baa1 backed senior unsecured ratings of Brambles Finance Limited, Brambles Finance plc, and Brambles USA, Inc. The outlooks remain stable. »IMPORTANT NOTICE: MOODY’S RATINGS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS. SUCH USE WOULD BE RECKLESS AND INAPPROPRIATE. SEE FULL DISCLAIMERS BELOW. »RATINGS RATIONALEThe rating affirmation reflects Brambles’ strong, defensible position that is embedded in the supply chains of most of the world’s major markets. The industry has high barriers to entry given the significant capital investment required to establish a pallet pooling system, and the risk inherent to switching for Brambles’ customers. The company also benefits from its CHEP business primarily serving the consumer staples market, reducing volatility.The stable outlook reflects the rating agency’s expectation that Brambles will maintain significant headroom over the next 18 months relative to its ratings threshold.Given the large capital investment required to replenish and grow the pallet pool, pandemic-related lumber scarcity, as well as higher transport and labour costs, have resulted in significant cost inflation. This will cause Brambles to generate negative free cash flow in the year ending 30 June 2022 and maybe 2023. However, Brambles can pass on price increases, which is a credit positive. In the first half (1H) of 2022, the company generated 8% growth in revenue, which was essentially due to higher pricing to recover cost inflation. The company’s management has stated that pricing momentum will continue with rollover benefits from 1H 2022 and additional pricing actions in 2H 2022.Moody’s expects the company’s debt/EBITDA to remain between 1.6x and 1.8x over the next 12-18 months. While this is stronger than Moody’s upward rating threshold of less than 2x for the Baa1 rating, the rating agency expects to maintain Brambles’ rating at Baa1 given its financial policy target aligns with Moody’s Baa1 ratings thresholds.As of 31 December 2021, Brambles had USD194 million of cash and deposits as well as an undrawn committed borrowing capacity of USD1.1 billion. The average term to maturity of its committed credit facilities was 3.2 years as of December 2021, and there are no significant maturities until June 2024 when EUR500 million of bonds mature.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody’s could upgrade Brambles’ rating if its debt/EBITDA remains below 2.0x and free cash flow after dividends and capital expenditure stays at a positive level on a sustained basis.The rating agency could downgrade Brambles’ ratings if its debt/EBITDA exceeds 2.6x or EBITA/interest coverage declines below 6x on a sustained basis.The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287897. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Brambles Limited is an Australian supply chain logistics company that operates in over 60 countries. It provides pooling solutions through its CHEP brand, which remains the world’s largest pallet pooling business. Brambles is listed on the Australian Securities Exchange.Its consolidated revenue for the 12 months to 30 June 2021 was USD5.2 billion.REGULATORY DISCLOSURESFor 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_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.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. Ian Chitterer VP – Senior Credit Officer Corporate Finance Group Moody’s Investors Service Pty. Ltd. 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