E-Malt.com News article: Denmark: Outlook for Carlsberg’s performance in FY09 remains stable – Fitch ratings

Fitch ratings has on May 11 affirmed Carlsberg's (Breweries) Long-term Issuer Default Rating (IDR) and senior unsecured rating at 'BBB-', respectively, and its Short-term IDR at 'F3', finchannel.com posted on May, 12.

The Outlook on the Long-term IDR is Stable, Fitch ratings analysts said.

"Today's rating action reflects the agency's confidence about Carlsberg's ability to deliver on its targets to de-leverage towards 3.0x, although reaching this level may be delayed to FYE10 due to a deteriorating trading environment for the company's core Russian business, which accounts for as much as 40-45% of the company's operating profit," said Giulio Lombardi, Senior Director in Fitch's European Retail and Consumer Products Group.

"The performance of Carlsberg’s Russian operations in euro equivalent is key for the direction of the company's rating, since an equivalent of DKK34 bln (three quarters of total) debt was denominated in euros as of end December 2008 while the cash flow of this unit is generated in Russian roubles. The ability to repay debt is therefore exposed to any fluctuations in the rouble/euro rate."

The rating further reflects the brewer's balanced profile with operations both in the mature and developing world, the important market shares of at least between 30% and 40% that it enjoys in each of the countries and regions where it operates (including Russia, France, Switzerland, the Nordic and Baltic countries and Western China), supported by the high awareness of its core brands including Carlsberg, Tuborg, Kronenbourg and Baltika. Finally, in addition to the cost rationalisations already achieved in the past five years, a number of new restructuring initiatives are being implemented in Northern and Western Europe. Acquisition synergies are expected to amount to DKK1.3 bln by FY11, which should enable the company to increase its regional profit margin over time.

Following last year's joint acquisition with Heineken International NV of Scottish & Newcastle plc (S&N) for DKK57 bln on a cash- and debt-free basis for its respective portion, the company's net debt has increased to DKK47.3 bln as of FYE08 (FYE07: DKK17.9 bln). On an annualised basis, had the S&N assets been consolidated for the full FY08, Fitch calculates that Carlsberg's Operating EBITDAR would have been DKK12.8 bln (up from DKK11.1 bln in FY07), yielding a lease-adjusted Net Debt/Operating EBITDAR of approximately 3.7x.

Fitch has estimated Carlsberg's FY09 leverage by assuming a varied deterioration in beer demand in the company's different markets and by making varied assumptions on the performance of the rouble, including a stress scenario reflecting a 50% devaluation of the rouble since last October's levels and a severe drop of the brewer's Eastern European local currency net revenues.

The agency is comforted that Carlsberg has measures in place to reduce adverse effects on cash flow from a further depreciation of the rouble and a more severe economic downturn in Russia by cutting capex and costs. Overall, Fitch estimates that FY09 leverage should, at worse, remain unchanged at FY08's annualised level of 3.7x and improve moderately in FY10, with sufficient headroom under the Net Debt/EBITDA covenant (for 2009, minimum Net Debt / EBITDA under the covenant is 4.0x). Consequently, the Outlook remains Stable.

While liquidity is adequate for 2009 and the first part of 2010, Carlsberg has a large amount of debt of DKK10.2 bln due in October 2010 that it currently estimates it would need to refinance with new external resources. Fitch believes that even if the severe downside scenario materialises, the company should be able to generate sufficient cash flow to materially reduce this refinancing need.


13 May, 2009