Sept 26 - Fitch Ratings has affirmed CRH Plc's (CRH) senior unsecured rating and Long-term Issuer Default Rating (IDR) at 'BBB' with a Stable Outlook. The 'BBB' senior unsecured rating has also been affirmed for subsidiaries CRH America Inc., CRH Finance BV, CRH Finance (UK) plc and CRH Finance Limited. The Short-term IDR has been affirmed at 'F2'.
CRH's ratings continue to reflect the group's diversification in terms of product, geography and end-markets. It remains a leading global integrated building materials group, which gives it some pricing power due to the inherent barriers to entry in some building materials markets. CRH also has a solid track record in generating cash flow from operations and integrating acquired businesses. FCF remained positive during the crisis and Fitch expects this to continue in 2012 and 2013.
Group leverage (on a Fitch adjusted net debt/EBITDAR basis) remains at around 2.9x at H1 2012. Fitch believes that this will reduce at a slower pace than anticipated in 2012 and 2013, to around 2.8x, as the medium-term European outlook is challenging and has deteriorated somewhat since late 2011. Fitch expects FY12 EBITDA to be broadly similar to FY11 result.
Although CRH operates in over 30 countries, its major businesses are in Europe, which represents 53% of total consolidated revenue and 61% of EBITDA at H112. Continued weak European end-markets and an improved US market meant that like for like sales were up 1% overall in H112. As a result, H112 group EBITDA fell 1% to EUR568m (EUR574m at H111), although H2 is always the main profit generating period for building materials companies.
However, US performance improved in H112 due to like-for-like sales growth of 8% and some increased pricing in the Materials (aggregates and asphalt) and Products divisions. In the US volumes were for example improved in aggregates (+10%) and ready mixed concrete (RMC) (+11%). The outlook for the US public finance/infrastructure sector for H212 is characterised by a limited economic recovery and a return to stability. The US's infrastructure spend should be stable to 2014, as state spending (as opposed to federal spend) on roads and transportation marginally improves. This should underpin CRH's US materials division, which has seen good volumes and price increases in H112 (for example asphalt: volumes +11% and prices +5%).
On the residential side, both the new build and second hand markets improved in H112, with multi- family construction rising 30%, albeit from low levels. Fitch's US house-builder group now expects housing metrics to be slightly up during the year, although any housing recovery in 2012 and 2013 will be cautious.
Recent sale proceeds of EUR0.6bn from the divestment of the Portuguese subsidiary, Secil, provide some rating flexibility for bolt-on acquisitions. In recent years, CRH has successfully redeployed disposal proceeds, typically in low-growth segments, into improving its presence in faster growing markets. CRH has a good track in integrating acquired businesses. The company is currently cautious regarding purchasing businesses and in H112, acquisitions totalling EUR256m were completed.
Fitch views CRH's liquidity position as satisfactory for the rating, with unrestricted cash of EUR1.1bn at H212 and EUR1.77bn in undrawn committed facilities with an average maturity of around 3.5 years. CRH's debt maturity profile is balanced with only EUR0.9bn of debt repayable between 2012 and 2013, of EUR5.2bn of gross debt.
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- Leverage (adjusted net debt/EBITDAR) below 2.0x on a sustained basis
- FFO adjusted gross leverage below 3.25x on a sustained basis
- EBIT margin to improve towards 8% on a sustained basis
- Free cash flow to remain positive on a sustained basis
Negative: Rating issues that may both individually or collectively, lead to a negative rating action include:
- Leverage (adjusted net debt/EBITDAR) above 3.0x on a sustained basis
- FFO adjusted gross leverage above 4.0x on a sustained basis
- EBIT margin below 5.0% on a sustained basis
- Free cash flow below 1.0% on a sustained basis