Paris, March 31, 2020 -- Moody's Investors Service, ("Moody's") has
today affirmed LVMH Moet Hennessy Louis Vuitton SE's (LVMH) A1 long-term
issuer rating and P-1 short-term issuer rating. In
addition, Moody's has affirmed LVMH's A1 rating of senior unsecured
notes and the (P)A1 rating of its senior unsecured medium-term
notes program; including the P-1 commercial paper program
rating of LVMH Moet Hennessy Louis Vuitton Inc. The outlook remains
stable for both entities.
RATINGS RATIONALE
Although the Coronavirus outbreak is creating a severe and extensive credit
shock across many sectors, regions and markets, Moody's
believes that LVMH's credit quality remains well-positioned
within the A1 rating category. The affirmation of LVMH's
ratings is despite the agency's expectations that the company's
sales and earnings will be negatively affected due to store closures given
travel restrictions and lockdowns globally, and the fact that a
large proportion of the company's direct and indirect customers
are from China where we have already seen prolonged lockdowns and travel
restrictions. Moody's expects a weaker economic environment
through 2021 on account of the Coronavirus crisis, but companies
in the luxury sector with strong product and geographic diversification,
such as LVMH, have tended to be relatively resilient in an economic
downturn. Moody's regards the coronavirus outbreak as a social
risk under our ESG framework, given the substantial implications
for public health and safety.
LVMH's business model is strong to accommodate a temporary deterioration
of its credit ratios. Its A1 rating factors in (1) its number one
position in the luxury market worldwide, with €54 billion of
revenue reported in 2019; (2) its good business and geographic diversity,
further increased by the acquisition of Tiffany & Co. (Baa2,
RUR Up), which decrease earnings volatility; (3) its portfolio
of prestigious brands; (4) its robust free cash flow generation --
as evidenced by a Moody's adjusted free cash flow of €2.3
billion in 2019.
Moody's forecasts that LVMH's Moody's-adjusted
(gross) debt/EBITDA ratio will likely remain higher than the 3x level
commensurate with a A1 rating in 2020 and possibly in 2021. The
rating affirmation assumes that, over time, LVMH's EBITDA
will start rising again at a pace similar to the 9% average growth
rate achieved over the 2015-2019 period.
LVMH's A1 issuer rating and stable outlook reflect Moody's expectations
that the company will focus over the next 24 months on reducing its gross
debt, to restore its credit metrics to be back in line with the
parameters for the rating category -- including a Moody's-adjusted
debt/EBITDA ratio below 3x -- and that it will pursue a prudent financial
policy.
LVMH has a good liquidity underpinned by €5.7 billion of cash
on balance sheet as of 31 December 2019 as well as €0.9 billion
of marketable securities, compared to €7.6 billion of
short-term debt. It has also access to €21.1
billion of available credit facilities, of which €15.2
billion have been set up to secure financing for the acquisition of Tiffany.
When the transaction was announced, this financing package comprised
a $8.5 billion bridge facility, a $5.75
billion commercial paper back up line and a €2.5 billion revolving
credit facility. In February 2020, LVMH raised €7.5
billion and GBP1.55 billion pounds through several bond issuances.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's view that the Coronavirus outbreak
will not impair LVMH's robust business risk profile and that its earnings
will start growing again after the epidemic subsides. This will
enable the group to improve credit ratios that are currently weakly positioned
for an A1 rating reflecting the recent acquisition of Tiffany's
and coronavirus-related disruption.
The rating agency also assumes that LVMH will stabilise Tiffany's earnings
over time and that it will not incur sizable restructuring charges.
Moreover, Moody's does not expect that LVMH will make any sizable
debt-funded acquisition over the next 18 months and that most of
its free cash flows after dividends will be allocated to debt repayment.
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.
Factors that would lead to an upgrade or downgrade of the ratings:
Although an upgrade is unlikely in the near future, Moody's could
upgrade LVMH's ratings if it committed to maintaining a (gross) debt/EBITDA
ratio of less than 2x and a funds from operations (FFO)/net debt ratio
above 45%, on a Moody's-adjusted basis, on a
sustainable basis. This would require higher-than-expected
earnings growth as well as more moderate shareholder remuneration and
restrained debt-financed acquisitions. A positive rating
action would also hinge on a more balanced earnings contribution of each
business division.
Conversely, the rating agency could consider a negative rating action
if, on a Moody's-adjusted basis, its (gross) debt/EBITDA
ratio remained at 3x or if its Funds From Operations/net debt ratio stayed
around 35% for a prolonged period of time. Such a scenario
could unfold in the event of a sustained downturn of the luxury industry,
a deterioration of LVMH's key brands or a failure to curb Tiffany's earnings
decline.
Moody's could also consider a downgrade if it considers that LVMH's financial
policy has become more aggressive, as shown for instance by the
occurrence of another sizable debt-financed acquisition over the
next 18 months. Lastly, Moody's could also lower LVMH's ratings
if the credit quality of the group's controlling holding companies deteriorated
significantly.
COMPANY PROFILE
With €54 billion of revenue in 2019, LVMH is the world's largest
luxury group, ahead of The Estee Lauder Companies Inc. (A1
stable), Compagnie Financière Richemont SA, EssilorLuxottica
(A2 stable) and Kering. Its main shareholder is the Arnault Family
Group, which held 47% of the capital and 63% of the
voting rights as of 31 December 2019.
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
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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 https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
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.
Vincent Gusdorf, CFA
VP - Sr Credit Officer
Corporate Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Jeanine Arnold
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
