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Rating Action:

MOODY'S PLACES SAFEWAY PLC'S Baa1 BOND RATINGS ON REVIEW FOR POSSIBLE DOWNGRADE

21 Oct 2005
MOODY'S PLACES SAFEWAY PLC'S Baa1 BOND RATINGS ON REVIEW FOR POSSIBLE DOWNGRADE

Approximately GBP950 million of long-term debt instruments affected

Paris, October 21, 2005 -- Moody's Investors Service has today placed the Baa1 bond ratings of Safeway plc ("Safeway") on review for possible downgrade following the company's publication of its interim results and the announcement that its profit before tax, exceptional items and goodwill will be towards the lower end of the GBP50-150 million guidance range provided to the markets in early June 2005.

The review has been prompted by:

(1) The operating performance of Wm Morrison Supermarkets plc ("Morrisons"), guarantor of the Safeway bonds, which has significantly weakened over the past year: operating profit pre-exceptionals was GBP50.7 million in H1 FYE January 2006, versus GBP168.9 million in H1 FYE January 2005.

(2) The announcement that the group's profit before tax, exceptional items and goodwill will be towards the lower end of the GBP50-150 million guidance range. The group's performance has been negatively impacted by significant double running costs relating to the store conversion programme and the integration of the group's distribution and IT systems.

On the positive side, Moody's takes account of the fact that the company appears to be on track to complete its store conversion programme as scheduled (i.e. by early December 2005). At the trading level, Moody's continues to view positively the encouraging like-for-like sales growth of stores converted from Safeway to Morrisons, although growth has been slowing down compared to the last trading update. Converted stores saw like-for-like sales for the period post conversion increase by 11.0% excluding fuel for the 12 weeks to 16 October 2005 compared to 15.6% for H1 FYE January 2006.

The rating review will focus on the operating performance and overall funding plans of the company and more specifically on:

(1) The impact of the significantly more challenging-than-expected integration of the Safeway business and double running costs on the group's FYE January 2006 operating performance and financial profile.

(2) The company's capacity to generate free cash flow over the intermediate term and achieve the credit metrics previously anticipated by Moody's (i.e. Total Coverage around 4 times and Adj. RCF/Pension-Adj. Net Debt in the high-teens percent for FYE January 2007).

(3) Management's ability to establish the requisite internal control, budgeting and reporting systems.

Debt securities affected by the rating review are as follows:

Safeway plc bonds, all rated Baa1:

- Euro Medium-Term Notes: GBP250 million due August 2007, EUR250 million due April 2010, GBP150 million due August 2014 and GBP200 million due January 2017.

- Eurobonds: GBP200 million due December 2018

Wm Morrison Supermarkets plc, headquartered in Bradford, England, is a leading UK food retailer. The company had revenues of GBP12.1 billion during the year ended January 2005.

Paris
Eric de Bodard
Managing Director
European Corporates
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Paris
Marie Fischer-Sabatie
Analyst
European Corporates
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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