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2 个月前
Fitch Revises Dufry AG's Outlook to Stable; Affirms at 'BB-'
2017年6月8日 / 下午2点54分 / 2 个月前

Fitch Revises Dufry AG's Outlook to Stable; Affirms at 'BB-'

(The following statement was released by the rating agency) FRANKFURT/LONDON, June 08 (Fitch) 'Fitch Ratings has revised the Outlook on Dufry AG's Issuer Default Rating to Stable from Negative and affirmed the IDR at 'BB-'. Fitch has also affirmed Dufry Finance SCA's senior notes at 'BB-'. The change of the Outlook to Stable from Negative reflects Fitch's view as regards the success of Dufry's integrated transformational acquisitions and our expectations of sustainably improving free cash flows and margins; these factors should drive de-leveraging towards 5.0x on a funds from operations (FFO)-adjusted gross basis in the medium term, a level we consider more comfortable with the rating given the cyclical demand profile in line with the economic cycle. The rating action critically relies on management's rigorous execution of operational improvement measures and its commitment to its target net debt to EBITDA of 3.0x. KEY RATING DRIVERS Accelerating Organic Growth: Fitch projects low single digit organic growth for Dufry's operations, supported by the implementation of the Business Operating Model (BOM) to stimulate sales and operating margins. The issuer's intension to explore the benefits of digitalisation, which has become indispensable in traditional retail and which has been underutilised in travel retail, as well as the active management of customer data will be beneficial to the mobilisation of incremental sales. Realisation of additional synergies of CHF20 million through streamlining of certain corporate functions and business processes would add up to 50bp to the EBITDA margin in the medium term. Supportive Macro-Economic Environment: A generally stable macro-economic environment with strong performance in the developed markets in combination with improving consumer confidence in the emerging markets along with stabilisation of the national currencies, particularly in Latin America and Russia, should provide additional impetus for growth. The lift of a travel ban for Russian tourists going to Turkey has reversed the regional performance to positive in 2H16, supporting our expectations of a strong 2017 trading performance. Recovery Uncertainty in Brazil: Given Dufry's considerable exposure to Brazil, which we estimate at around 5% of group revenues, we remain cautious on the pace of the economic recovery and restoration of consumer confidence in Brazil, due to the political uncertainties related to President Michel Temer. Fitch expects a steady, albeit slow recovery this year of 0.5%, further accelerating to 2.5% in 2018. Focus on Execution: The Stabilisation of the Outlook reflects the evidence of adequate execution skills of Dufry's management and its adherence to stated financial policies. The disciplined execution of two transformational acquisitions, with fully realised synergies, provides confidence for the timely implementation of the operational improvement measures contained in the BOM. An early redemption of the USD500 million senior notes in December 2016 signals the issuer's commitment to the leverage target of 3.0x. An inability to improve operating performance by the end-2018 as planned, coupled with stagnating deleveraging would put ratings under pressure. Leverage Still Stretched: Projected FFO-adjusted leverage of 5.9x at the end of 2017 remains an outlier for an IDR of 'BB-', and is in line with a lower non-investment grade for the retail sector. In the absence of contractual debt amortisation, deleveraging relies solely on Dufry's ability to continuously improve sales and operating margins. Through the implementation of sales and profitability strengthening initiatives outlined in the BOM, we project FFO-adjusted leverage will reduce towards 5.0x in 2020, and become more comfortable for the assigned rating. For the purposes of FFO-adjusted leverage calculation, Fitch capitalises only the Minimum Guarantee Payments under the concession contracts estimated at 5% of sales multiplied by eight times. Modified FFO Fixed-Charge Cover Ratio: In line with the change to the calculation of the FFO Fixed-Charge Cover introduced by Fitch in 2016, the agency continues to capitalise the entire amount of concession fees. The resulting ratio of 1.3x is materially below peers in the 'BB' rating category for the sector. However, we consider the ratio of 1.3x in the context of largely flexible concession fees, linked to Dufry's underlying operating performance, which does not imply a constrained financial flexibility of the issuer; on the contrary we expect greater resilience through the economic cycle as both sales and concession fees would reduce albeit not in perfect synchronization. Due to its expected stability through the cycle, the modified FFO Fixed-Charge Cover levels have no impact on the rating. Further Acquisitions Likely: Fitch considers bolt-on acquisitions to be part of the business development strategy. We have therefore included in our rating case an annual acquisition budget of CHF200 million starting in 2018, after Dufry has fully absorbed the transformational acquisitions of recent years. Larger acquisitions would be considered as event risk. DERIVATION SUMMARY Dufry's IDR of 'BB-' reflects a low investment grade business risk profile, evident in scale, the quality of the concession portfolio and strong cash flow generation, constrained by an elevated indebtedness level which is more in line with the 'B' rating category. Similarly to traditional retailers, Dufry is exposed to changes in consumer confidence, or volume risk, expressed in the number of travellers, while carrying little price risk as the company benefits from the captive and generally more affluent air travel audience. At the same time, travel retailers tend to be more cyclical and seasonal than conventional general retailers. The uniqueness of Dufry's P&L structure is the largely flexible cost of its concessions, linked to certain operating performance parameters such as sales. Such flexibility allows the company to maintain an FFO fixed-charge cover ratio at about 1.3x, without compromising its financial flexibility. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for Dufry include: - annual organic growth of 3%-4% until 2020 - EBITDA margin gradually improving towards 13% in the medium term - capex at 3.5% of sales, in line with management guidance - common dividends assumed at CHF100 million-CHF200 million a year based on the results of 2018 when we project Dufry will approach its net leverage target of 3.0x - minority dividends of 5% of EBITDA - net trade working capital rising in line with sales, leading to an average cash outflow of CHF20 million a year - bank debt maturing in July 2019 is assumed to be refinanced at maturity on the same terms - add-on acquisitions of CHF200 million a year from 2018 RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action -Sustained positive organic sales growth and EBITDA margins improving towards 15%. -Pre-dividend free cash flows sustainably at high single digit levels. -FFO adjusted leverage decreasing to <4.5x, or FFO adjusted net leverage to <4.0x. -FFO fixed charge cover improving towards 1.4x. Developments That May, Individually or Collectively, Lead to Negative Rating Action -Stagnating sales and EBITDA margins remaining below 12% as a result of an inability to realise planned business improvement measures or address operational challenges. -Execution of a sizeable predominantly debt-funded acquisition jeopardising de-leveraging. -Leverage persistently in excess of 5.5x on FFO adjusted gross basis, or FFO-adjusted net leverage staying above 5.0x. - FFO fixed charge cover tightening towards 1.2x. LIQUIDITY Comfortable Liquidity, Low Refinancing Risk: Fitch projects comfortable organic liquidity of CHF300 million to CHF400 million per annum, leading to average non-restricted cash reserves of CHF350 million until 2020. According to management guidance, the cash drawdown under the revolving credit facility of CHF372 million at the end of 2016 will be reduced to zero during 2017. Restricted cash reserves have been kept at CHF100 million. In light of the good access to public debt and equity markets, and investors' familiarity with Dufry's business model, refinancing risk is considered low. Contact: Principal Analyst Maggie Cheng, CFA Associate Director +44 20 73530 1689 Supervisory Analyst Elena Stock Director +49 69 6 80 76 135 Fitch Deutschland GmbH Neue Mainzer Strasse 46-50 D-60311 Frankfurt am Main Committee Chairperson Pablo Mazzini Senior Director +44 20 3530 1021 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Summary of Financial Statement Adjustments - Financial debt adjusted by fixed rental obligations payable under concession agreements assumed at 5% of sales, multiplied by 8.0x - reported cash reduced by CHF100 million as minimum cash required for operations which cannot be used for debt service - EBITDA excludes associate income of CHF4 million - FFO excludes net result from non-controlling interest of CHF44 million - One-off payment of CHF14 million in connection with early redemption of senior notes of USD500 million in December 2016 excluded from interest paid and added to Other Investing and Financing Cash Flow Items. 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 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. 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