CRH America Finance, Inc. — Moody’s affirms CRH’s Baa1 rating; outlook stable

Rating Action: Moody’s affirms CRH’s Baa1 rating; outlook stableGlobal Credit Research – 25 Mar 2021Frankfurt am Main, March 25, 2021 — Moody’s Investors Service (« Moody’s ») has today affirmed CRH plc’s (CRH) Baa1 long term issuer rating. Concurrently, the agency has also affirmed the group’s senior unsecured EMTN programme rating at (P)Baa1 and its backed commercial paper programmes rating at P-2. The outlook on all ratings remains stable. »Today’s rating action reflects the company’s track record of maintaining strong credit metrics and its sustainably positive free cash flow generation. CRH’s performance in 2020 remained resilient despite the pandemic and will likely remain solid as the economy recovers in the next 12-18 months », says Vitali Morgovski, a Moody’s Assistant Vice President — Analyst and lead analyst for CRH.A full list of affected ratings can be found at the end of this press release.RATINGS RATIONALEAgainst the backdrop of the global coronavirus pandemic, government-imposed lockdowns attempting to combat the virus spreading and an unprecedented sharp fall in GDP growth across CRH’s core markets, the company’s performance in 2020 remained very robust. Its revenue declined by merely 2% while EBITDA grew by 5%, both on a like-for-like basis compared to previous year, as the group benefited from robust construction activity in the US and further growth in its Building Products segment whereas Europe Materials were more impacted by Covid-19 restrictions.CRH continued to generate positive free cash flow (Moody’s adjusted, post dividends) despite higher dividend distributions. Last year’s FCF was close to $2 billion, which together with precautionary E2 billion bond issuance in April allowed the company to accumulate $7.7 billion in cash at the year-end 2020, corresponding to 28% of sales. Moody’s adjusted credit metrics on a gross debt basis such as gross debt/ EBITDA at 3.2x remained adequate for the rating while on a net debt basis metrics such as retained cash flow/ net debt at 44.7% look strong.Moody’s believes that after rather muted acquisition activity in 2020 (around $0.4 billion spending on bolt-on deals) CRH will target a larger M&A spending in the coming 12-18 months. However, its large cash balance and an ongoing positive FCF generation provides the company significant flexibility to pursue inorganic options without jeopardizing its current rating level.CRH’s rating is mainly supported by the group’s (1) good product diversification; (2) high degree of vertical integration, with a higher exposure to more stable and less capital-intensive light-side building materials than its cement peers; (3) good geographical diversification, although CRH is more focused on mature developed markets in Europe and North America than its competitors; (4) credit metrics, which were resilient through the downturn in 2009-11 and also in 2020; and (5) strong liquidity profile.However, CRH’s rating is constrained by (1) the cyclicality of construction end-markets; (2) ongoing lockdowns still restricting economic activity and weaker market outlooks for some construction sub-segment such as non-residential construction (3) M&A associated event risk given the company’s history of multibillion acquisitions, although noting the rather subdued activity on that front last year; and (4) increasing shareholder remuneration with higher dividends complimented by share buybacks.RATIONALE FOR STABLE OUTLOOKThe stable outlook reflects Moody’s expectation that CRH will continue to exhibit relative resilience in its performance and will maintain credit metrics in line with the Baa1 rating requirements.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSWHAT COULD MOVE THE RATINGS – UPPositive rating pressure could arise if:** Moody’s adjusted retained cash flow/ net debt remains sustainably above 35% and** Moody’s adjusted gross debt/EBITDA declines sustainably below 2.5xWHAT COULD MOVE THE RATINGS — DOWNConversely, negative rating pressure could arise if:** Moody’s adjusted retained cash flow/ net debt drops sustainably below 25% or** Moody’s adjusted gross debt/EBITDA exceeds 3.5x on a sustained basisLIQUIDITYThe liquidity of CRH is strong. As of year-end 2020, the company had approximately $7.7 billion of cash on its balance sheet and access to around E3.5 billion of undrawn committed facilities, which maturity was recently extended to 2026. These liquidity sources, combined with strong cash flow generation, should be more than sufficient to cover the anticipated cash needs over the next 12 months, including seasonal working capital swings, capital spending, upcoming debt maturities, dividend payments and other day-to-day business needs.ESG CONSIDERATIONSEnvironmental considerations are an important factor in the credit analysis of CRH. The company is exposed to a strict regulations of carbon dioxide (CO2) emissions, especially with regard to Phase IV of the European Union Emission Trading System that will run from 2021-30. However, given the company’s diversified product range and regional diversification, with large amount of cement and cement products production in the US, where carbon regulation is less strict than in Europe, as well as CRH’s commitment to reduce its carbon emissions and increase the use of recycled materials, we do not expect environmental issues and the energy transition to have a significant adverse effect on the company’s operating and financial performance in the next 12-18 months. CRH has reduced its CO2 emissions by 26% since 1990 to 573 kg net CO2 per tonne cementitious products and strives to reduce it further to 520 kg net CO2 per tonne by 2030. The ultimate goal is to become carbon neutral by 2050.CRH is a publicly listed company incorporated in Ireland with a primary listing on the London Stock Exchange, and a secondary listing on Euronext Dublin, with American depositary shares listed on the New York Stock Exchange. The company follows the UK Corporate Governance Code and 85% of its board members are independent. The group’s financial policy follows a balanced approach to creditors and shareholders. This is reflected in the company’s target to increase shareholder remuneration through dividends and share buybacks, while retaining its balance-sheet strength and flexibility to pursue acquisition opportunities.LIST OF AFFECTED RATINGS:..Issuer: CRH America Finance, Inc.Affirmations:….BACKED Commercial Paper, Affirmed P-2….BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa1 Outlook Actions: ….Outlook, Remains Stable ..Issuer: CRH America, Inc. Affirmations: ….BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa1Outlook Actions:….Outlook, Remains Stable..Issuer: CRH Canada Finance, Inc.Affirmations:….BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1Outlook Actions:….Outlook, Remains Stable..Issuer: CRH Finance (U.K.) plcAffirmations:….BACKED Commercial Paper, Affirmed P-2….BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa1Outlook Actions:….Outlook, Remains Stable..Issuer: CRH Finance Designated Activity CompanyAffirmations:….BACKED Commercial Paper, Affirmed P-2….BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1….BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa1Outlook Actions:….Outlook, Remains Stable..Issuer: CRH Finance Germany GmbHAffirmations:….BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa1Outlook Actions:….Outlook, Remains Stable..Issuer: CRH Finance Switzerland AGAffirmations:….BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa1Outlook Actions:….Outlook, Remains Stable..Issuer: CRH Finland Services OyjAffirmations:….BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1….BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa1 Outlook Actions: ….Outlook, Remains Stable ..Issuer: CRH Funding B.V. Affirmations: ….BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1….BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa1 Outlook Actions: ….Outlook, Remains Stable ..Issuer: CRH plc Affirmations: …. LT Issuer Rating, Affirmed Baa1 Outlook Actions: ….Outlook, Remains Stable ..Issuer: CRH Smw Finance DAC Affirmations: ….BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1….BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Baa1 Outlook Actions: ….Outlook, Remains Stable 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.PROFILEHeadquartered in Dublin, Ireland, CRH plc (CRH) is one of the world’s largest building materials companies with operations spread across 30 countries and around 77 thousand employees. CRH covers the entire value chain from aggregates and cement to concrete and other construction-related products. In 2020, the group generated $27.6 billion in revenue. CRH is publicly listed with a market capitalization of around $36 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. 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