April 24, 2017 / 5:20 PM / in 6 months

Fitch Downgrades Casino to 'BB+'; Outlook Stable

(The following statement was released by the rating agency) PARIS, April 24 (Fitch) Fitch Ratings has downgraded Casino Guichard-Perrachon SA's (Casino) Long-Term Issuer Default Rating IDR and senior unsecured rating to 'BB+'. The Outlook is Stable. A full list of rating actions is below. The downgrade reflects the weaker-than-expected profit growth in Casino's core French market in 2016 relative to Fitch's expectations. Furthermore, we forecast the pace of operating performance and cash generation improvement for 2017 and 2018 will be weaker than previously envisaged on a proportionally consolidated basis. This is due to the high weight of France in the group's results, for which we expect only slow improvement. Although we continue to expect EBITDA uplift due to a successful repositioning strategy, Casino's French operations will continue to face challenging market conditions. This will delay any meaningful deleveraging with funds from operations (FFO)-adjusted net leverage (proportionally consolidated) now expected to stay above 4.0x for a longer period, which is a level seen as consistent with a 'BB+' rating relative to rated sector peers. The Stable Outlook reflects our confidence in the company's self-help measures looking to enhance its market position and profitability while maintaining adequate financial flexibility and a conservative financial policy. KEY RATING DRIVERS French Results Lower Than Expected: Fitch expects Casino's French EBITDA to remain below the EUR1 billion mark we were expecting for 2016, reflecting challenging trading and continuing fierce competition. Our revised forecast has French EBITDA of at least EUR900 million (4.7% margin) in 2017, up from EUR872 million (4.6%) in 2016. Moderate Growth Prospects: French profit growth over the next three years should remain supported by past gross margin optimisation through purchasing agreements and cost base streamlining. We acknowledge Casino's somehow lower presence in the challenged and low-margin hypermarket format relative to Carrefour, and its intention to focus efforts on the development of the higher-margin premium segments. However, EBITDA uplift is likely to be capped by weak demand and high competition. Since France represents 71% of proportionally consolidated EBITDA (2016, continuing activities), there is limited scope to improve group's proportionally consolidated metrics. Brazil to Improve: Measures to adapt to Brazil's worsened consumer environment, including the rapid roll out of its Assai cash and carry chain and the repositioning of its hypermarket format, should support top-line growth from 2017. The domestic consumption outlook in Brazil has brightened by government initiatives to boost consumer spending, including a reform on workers' savings funds (FGTS). Any further improvement relies on a stronger economic recovery and a continued appreciation of the real against the euro from current levels, which appear uncertain. Brazil Recovery Insufficient: EBITDA from Brazilian operations should be supported by sales growth, lower inflation and an upside from the Brazilian Federal Supreme Court, which put an end to double taxation on Brazilian corporate sales from mid-March 2017. We expect operating margins to recover, albeit the move to more discount formats should cap them at lower levels than pre-crisis (2014 EBITDA margin: 7.5%). Fitch forecasts GPA Food's EBITDA margin to stabilise around 5% over the next three years. As Casino's 33.2%-owned Brazilian subsidiary represented only 16% of proportionally-consolidated EBITDA in 2016 (continuing activities), this implies only a mild recovery in Brazil's proportional contribution to group FFO until 2019. Disposals Positive for Financial Flexibility: The well-executed disposal of Big C Thailand and Vietnam in 1H16 has allowed net debt to reduce by EUR4.3 billion at group level and EUR3.9 billion at the Casino holding level. This is a key support for the group's deleveraging plan and financial flexibility. Further Deleveraging Challenging: Fitch expects proportionally consolidated FFO-adjusted net leverage will reduce to around 4.8x by end-2018. This trend remains positive but the pace of deleveraging is now slower than in our late 2016 forecasts. Further improvement in leverage depends on EBITDA and cash flow performance in France and to a lesser extent in Brazil. Greater-than-expected operating performance in core markets along with cash preservation measures, such as further smaller divestments, would however help strengthen future deleveraging prospects, making 4.5x net leverage by end-2018 a more achievable target. Limited Strategic Options: Fitch does not currently expect any significant transactions that would allow the group's financial profile to stay within parameters consistent with an investment grade rating by 2018. The impending disposal of Via Varejo is more likely to positively affect GPA, its Brazilian holding owner, as Casino's economic interest in this business is only 14.4%. Conversely, Fitch believes that keeping the stake would only marginally improve proportionally-consolidated financial metrics. Rebalanced Capital Structure Underpins Ratings: Casino's disposal plan has benefited the holding company, with a large part of disposal proceeds repaying debt at this level. The gap between holding and group proportionally consolidated FFO-adjusted net leverage (continued activities) has fallen to 0.7x in 2016 from 4.4x in 2014 and we expect this to remain around 1.0x-1.2x by 2019. This issue, largely addressed in 2016, follows Casino's past acquisitive stance, which had created capital structure imbalances reflected in a significant mismatch between debt (mostly at holding level) and cash (mostly located in partly owned subsidiaries) across the group. DERIVATION SUMMARY Casino is smaller than its European food retail peers and has a slightly weaker position in its main (French) market. However it has a higher-than-average EBITDAR margin due to its format mix in France and strong presence in less mature countries such as Brazil and Colombia. In comparison to most peers its rating is weighed down by a more leveraged financial profile. A significant asset disposal programme allowed it to already significantly reduce its net debt level, yet its deleveraging process is hampered by only a slow improvement in FFO generation. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Sales growth to accelerate, supported by further improvement in top-line growth in France and positive FX impact from the appreciation of the Brazilian and Colombian currencies against the euro. - A moderate improvement in EBITDA margin over the next three years, from 4.7% in 2016 up to 5.1% in 2019. This should be driven by limited margin uplift in France and Colombia, and a slightly more pronounced recovery in Brazil. - Annual capex around 3% of sales, slightly down from previous years due to strong discipline cross the group. - Continued dividend discipline policy with stable payments; the lower dividend in 2017 results from an interim payment made at the end of 2016. - Free cash Flow to turn mildly positive from 2017 driven by higher EBITDA and decreasing interest payments (lower debt and decreasing rates in Colombia and Brazil). - Disposal of GPA's stake in Via Varejo (including Cnova Brazil) in 2017. RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action - Group FFO margin consistently above 3.5%, reflecting sustainable turnaround in France and recovery in Brazil; - Proportionally consolidated FFO fixed charge cover at or above 2.0x; - Proportionally consolidated adjusted FFO net leverage below 4.0x on a sustainable basis ; - Maintenance of a reasonable convergence between proportionally consolidated and parent company's (including 100%-owned French entities) leverage metrics, reflecting adequate cash and debt match across the group. Future Developments That May, Individually or Collectively, Lead to Negative Rating Action - Lack of meaningful improvement in both core French and group like-for-like revenue growth and profits, resulting in group FFO margin trending to 2% on a sustained basis; - Proportionally consolidated FFO fixed charge cover consistently below 2.0x; - Lack of visibility whereby proportionally consolidated adjusted FFO net leverage reduces towards 4.5x; - Evidence of further divergence between proportionally consolidated and parent company's (including 100%-owned French entities) leverage metrics, reflecting continuing important capital structure imbalances. LIQUIDITY Adequate Liquidity: Both the group and the parent (including 100%-owned entities) have a comfortable liquidity profile. At end-2016 the parent's (including 100%-owned French entities) short-term debt maturities of approximately EUR1.3 billion were well covered by EUR3,464 million readily available cash and EUR3,759 million available committed credit lines. Parent liquidity is further supported by the significant asset disposals completed over 2015-2016 and a well-spread debt maturity profile. FULL LIST OF RATING ACTIONS Casino Guichard-Perrachon SA --Long-Term IDR: downgraded to 'BB+' from 'BBB-', Stable; --Short-Term IDR: downgrade to 'B' from 'F3'; --Senior unsecured: downgraded to 'BB+'/'B' from 'BBB-'/'F3'; -- EUR600 million perpetual preferred constant maturity swap securities and EUR750 million deeply subordinated fixed to reset rate (DS) notes: downgrade to 'BB-' from 'BB'; Casino Finance SA --Senior unsecured (debt guaranteed by Casino): downgraded to 'BB+'/'B' from 'BBB-'/'F3' Contact: Principal Analyst Anne Porte Director +33 1 44 29 91 36 Supervisory Analyst Jean-Pierre Husband Director +44 20 35 30 11 55 Fitch Ratings Limited 30 North Colonnade London E14 5GN Committee Chairperson Giulio Lombardi Senior Director +39 02 87 90 97 214 Summary of Financial Statement Adjustments - Adjusting Consolidated Profiles for Group Structures: Fitch calculates and monitors Casino's key financial metrics (adjusted FFO net leverage and FFO fixed charge cover) on a proportionally consolidated basis. The 2016 ratios include continued activities only. - FFO calculation: Fitch has excluded from its FFO calculation EUR150m million one-off cash gain related to unwinding and modification of interest swaps in the France perimeter, and EUR214m outflows related to one-off items. - Other Adjustments: Fitch's 2016 adjusted debt calculation also includes theoretical market exposure related to the total return swaps on 3% of GPA's capital and various put options granted to owners of minority interests (EUR382m). Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers (pub. 21 Nov 2016) here Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis (pub. 29 Feb 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below