RATINGS RATIONALE

Polypipe's B2 CFR continues to reflect (1) the company's leading market position in the U.K.; (2) its exposure to the more stable repair, maintenance and improvement (RMI) sub-sector; and (3) its long-dated debt maturity profile, removing immediate refinancing risk.

However, Polypipe's rating remains constrained by (1) the company's small scale in a competitive market; (2) the ongoing cyclicality in its end markets; (3) the company's lack of segmental and geographic diversification as it derives most of its revenues from plastic pipe systems in the U.K.; and (4) its exposure to volatile raw material costs.

"The stabilisation of the outlook reflects Moody's belief that Polypipe could be challenged to repeat its strong first half 2012 performance", says Margaux Pery, analyst at Moody's. Therefore, an upgrade of Polypipe's ratings has become unlikely in the short term.

Polypipe's EBITDA margin increased to 16.7% in the first half of 2012, up from 13.0% in H1 2011. However, the higher operating margin has been achieved mainly through selling price increases catching up raw material cost inflation from the previous year. The rating agency cautions that Polypipe may be challenged to pass on additional prices increases in the near term given that previous polymer cost increases have already been recovered and given the time lag in implementing price increases. In addition, as the outlook on the U.K. construction market remains dull, Moody's expects that the company will continue to face subdued sales volumes especially in its commercial and infrastructure division which is less exposed to the more stable RMI sub-sector. Therefore, Moody's believes that Polypipe could be challenged in 2013 to maintain its operating performance at the same level as in the first half of 2012.

Moody's deems Polypipe's liquidity as adequate. As of end of June 2012, Polypipe had access to around GBP29 million of cash on balance sheet and GBP30 million under its revolving credit facility (RCF) which remains undrawn. In addition, the company has a long-dated debt maturity profile with no debt maturing before 2015.

Upward pressure on the ratings could develop if Polypipe delivers higher than expected operating performance leading to (1) adjusted debt to EBITDA ratio below 3.0x; (2) EBITDA minus Capex to interest expense ratio above 2x; and (3) free cash flow to debt ratio exceeding 10% on a sustainable basis.

Negative pressure on the ratings could develop if the company's operating performance and cash flow generation were to deteriorate substantially, resulting in a weakening of existing credit metrics, such that: (1) its adjusted debt to EBITDA ratio increases to above 4.5x; (2) its EBITDA minus Capex to interest expense ratio moves below 1.5x; or (3) its free cash flow generation moves towards zero.

The principal methodology used in rating Pipe Holdings 2 Ltd was the Global Building Materials Industry Methodology published in July 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Pipe Holdings 2 Ltd is a U.K. manufacturer of plastic piping systems for the construction sector. It reported sales of around GBP286 million and EBITDA of around GBP40.2 million in the fiscal year ended December 2011.

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Margaux Pery Analyst Corporate Finance Group Moody'sInvestors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Chetan Modi MD - Corporate Finance Corporate Finance Group JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada SquareCanary WharfLondon E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 SUBSCRIBERS: 44 20 7772 5454 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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