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Related Issuers
Rating Action:

Moody's affirms Danone's Baa1 ratings; outlook stable

11 Apr 2022

Milan, April 11, 2022 -- Moody's Investors Service ("Moody's") has today affirmed the Baa1 senior unsecured ratings of Danone ("the company" or "the group"), the world leader in fresh dairy products, as well as the provisional (P)Baa1 senior unsecured rating of its euro medium term note (EMTN) programme and the Baa3 rating of the €1.25 billion subordinated hybrid notes. The outlook remains stable.

"The rating affirmation reflects that, while Danone is facing increasing operating challenges, which will slow down the deleveraging trajectory, we expect that the company will restore its financial metrics over the next 18 to 24 months, supported by sales recovery and restructuring measures," says Lorenzo Re, a Moody's Vice President - Senior Analyst and lead analyst for Danone.

A full list of affected ratings can be found at the end of the press release.

RATINGS RATIONALE

Danone's Baa1 ratings reflects the group's solid business profile, underpinned by its leading market positions in some product categories and well-recognised brands.

The rating also reflects Moody's expectation that Danone's credit ratios will improve gradually after 2022, as the company makes progress on its restructuring plan and successfully reignites sales growth.

The rating continues to be supported by Danone's financial policy, with a strong commitment to the current Baa1 rating and a prudent liquidity management.

Danone's operating performance continues to be challenged by pressure on margins stemming from input costs inflation, market share losses in some product categories and the need to increase investments in the business to support growth. In particular, the company now plans to reinvest all the €700 million cost savings generated by its Local First restructuring plan, in order to boost volumes, product innovation, advertising expenditures and operating efficiency.

In addition, exposure to Russia, where the company generates approximately 5%-6% of its revenue and less than 3% of EBIT, adds volatility to operating results.

In line with the company's guidance, Moody's expects that the company's underlying operating margin will be slightly above 12% in 2022 from 13.7% last year, marginally improving to 13%-13.5% in the following two years. This compares to the previous expectation of roughly 14%-15% underlying margin over the same period. As a result, the agency expects that the company's adjusted EBITDA will decline to €4.1 billion this year from €4.6 billion in 2021 and will gradually recover towards €4.4 billion in the following 18-24 months. While the company operates in categories that should allow to pass on raw material price increases, the current uncertain environment adds some risks to these estimates.

The company's credit metrics marginally improved in 2021, with RCF/Net debt increasing to 14.1% (from 12.7% in 2020) on the back of a recovery in cash flow from operations to €3.5 billion from €3 billion in 2020. This improvement was also supported by a different phasing of the restructuring plan, as most of cash expenses related to it will be incurred in 2022 and not in 2021 as originally planned.

Moody's expects that Danone's operating cash flow in 2022 will reduce to €2 billion driving a deterioration in its credit metrics, with gross debt /EBITDA increasing to 4.2x and RCF/net debt declining to 11%. However, the agency forecasts leverage to return to 4.0x and retained cash flow (RCF)/net debt to improve towards 15% in 2023, which would be within the boundaries for the Baa1 rating.

LIQUIDITY

Danone's liquidity is excellent and is supported by the group's solid cash position of €5.9 billion as of December 2021 and access to fully available €2.0 billion syndicated facility maturing in February 2025 and €1.0 billion bilateral facilities, which have maturity dates ranging from one to four years. Danone has Negotiable European Commercial Paper programme of €3.0 billion, of which about €760 million were used as of the end 2021.

Moody's expects free cash flow to be negative this year at around €700 million, mainly because of the restructuring costs related to the Local First plan. However, Moody's expects the available liquidity sources to comfortably cover the company's cash needs.

RATIONALE FOR STABLE OUTLOOK

Given that Danone's leverage is slightly above the maximum tolerance level for the Baa1 category, the rating is currently weakly positioned. However, the stable outlook reflects Danone's solid business risk profile and Moody's expectation that its financial metrics will recover in the next 24 months, with gross leverage reducing below 4.0x, while the company will take the necessary measures to bring metrics back in line with expectations in the event of an operating performance deviation.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Positive rating pressure could arise if Danone maintains its prudent financial policy, its Moody's-adjusted (gross) debt/EBITDA declines to below 3.0x and its retained cash flow (RCF)/net debt rises above 18%.

Negative rating pressure would build if Danone's fails to restore organic sales growth to mid-single digit rates, its Moody's-adjusted gross debt/EBITDA remains above 4.0x on a sustained basis (corresponding to a net leverage of around 3.5x) and its RCF/net debt deteriorates to below 13%.

LIST OF AFFECTED RATINGS

Affirmations:

..Issuer: Danone

....Subordinate Regular Bond/Debenture, Affirmed Baa3

....Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa1

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa1

Outlook Actions:

..Issuer: Danone

....Outlook, Remains Stable

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Consumer Packaged Goods Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1202237. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

Danone is a Paris-based diversified food and beverage company. With presence in more than 120 countries worldwide, it is the world leader in fresh dairy products and holds leading positions in the specialized and infant nutrition segment and in the water segment. Danone generated revenue of around €24.3 billion in 2021, with Moody's-adjusted EBITDA of €4.6 billion.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Lorenzo Re
Vice President - Senior Analyst
Corporate Finance Group
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan, 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Ivan Palacios
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan, 20122
Italy
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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