Paris, November 24, 2022 -- Moody's Investors Service (Moody's) has today affirmed LVMH Moet Hennessy Louis Vuitton SE's (LVMH) A1 long-term ratings and P-1 short-term ratings, as well as the A1 backed senior unsecured rating and P-1 backed commercial paper rating of its subsidiaries. At the same time, Moody's changed the outlook to positive from stable.
A full list of affected ratings is provided at the end of the press release.
RATINGS RATIONALE
The affirmation of LVMH's A1 rating and change of outlook to positive reflect LVMH's strong operating performance since rating assignment in July 2019, which has resulted in increased scale and improved profitability, as well as its strong credit metrics, which recovered rapidly after the Tiffany acquisition and currently position LVMH strongly at A1. The rating action also considers Moody's expectations that, despite the more challenging macroeconomic environment, LVMH is well positioned to continue to outperform in its sector, and that it will maintain a conservative financial policy and further strengthen its credit metrics in the next 12-18 months.
Moody's forecasts that LVMH's Moody's-adjusted (gross) debt/EBITDA ratio will be slightly below 2x in 2022 and gradually reduce to 1.7x over 2023-24, positioning the group strongly at A1, and that its Moody's-adjusted free funds from operations (FFO)/net debt will be around 50% in 2022 and strengthen to around 60% in 2023-24.
Governance considerations as per our ESG framework were key to the rating action. Strong operational execution, including during the pandemic when LVMH continued to generate robust cash flow, and a conservative financial policy have contributed to a rapid deleveraging following the Tiffany acquisition and a strengthening of LVMH's financial profile.
LVMH's A1 rating also factors in its number one position in the luxury market worldwide, with EUR76.5 billion of revenue in the 12 months ended September 2022; its presence in diverse business groups and good geographic diversification, which decreases earnings volatility; a portfolio of prestigious brands; and its robust credit metrics and free cash flow (FCF), as illustrated by Moody's-adjusted FCF averaging to about €4 billion annually in 2017-21.
At the same time, LVMH's rating incorporates some exposure to fashion risk and economic cycles; the concentration of its earnings on the fashion and leather goods product segment and the Louis Vuitton brand; sizable non-debt commitments in the form of put options granted to third parties, although the likelihood of put exercise is low; a fairly high payout ratio albeit in line with industry peers; and a degree of acquisition risk.
LIQUIDITY
LVMH has an adequate liquidity underpinned by EUR7.9 billion of cash on balance sheet as of 30 June 2022, strong FCF generation, which Moody's projects around EUR5 billion annually in 2022-23, and access to about EUR11 billion of committed revolving credit facilities (RCFs). As of 30 June 2022, LVMH had EUR11.0 billion of short-term borrowings, mostly comprising EUR8.5 billion of commercial paper issued under its US and Belgian programs. LVMH maintains large amounts of commercial paper outstanding, which can fluctuate during the year, but Moody's expects the size of LVMH's available committed RCFs to be greater than commercial paper outstanding at any point in time. Some of LVMH's RCFs include swinglines, which provide same-day funding.
RATIONALE FOR THE POSITIVE OUTLOOK
The positive outlook reflects Moody's expectations that LVMH will continue to sustain its strong operating performance, pursue a conservative financial risk management and further improve its credit metrics in the next 12 to 18 months.
ESG CONSIDERATIONS
LVMH has a moderate exposure to environmental risks (E-3), mainly reflecting the dependency of LVMH on goods derived from nature (e.g., leather, fur, fiber and vine-growing) and the waste created from leather tanning and from packaging material that often cannot be recycled. It has moderate exposure to social risks (S-3), mainly related to customer relations and responsible production. LVMH undertakes most of its manufacturing in-house in Europe and North America and has limited use of outsourcing, which enables it to better control its supply chain and directly oversee working conditions, mitigating these risks. LVMH's governance risks are neutral to low (G-2) and consider its conservative financial policies and risk management and an experienced management with a very strong operational track record. Moody's assessment also takes into consideration the concentration of LVMH's ownership, a governance structure where Bernard Arnault is LVMH's chairman, CEO and main shareholder, creating key-person risk, as well as some debt-funded acquisition risk.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade LVMH's rating on expectations that the group will continue maintaining its strong and diversified business profile, and conservative financial policies and risk management, in line with its recent track record. Quantitatively, Moody's could upgrade LVMH if it reduces its leverage (Moody's-adjusted debt/EBITDA) to below 2x and improves its Moody's-adjusted funds from operations (FFO)/net debt above 45%, both on a sustained basis. A more balanced earnings contribution from each business group would also be supportive of an upgrade.
Moody's could downgrade LVMH's rating if there is a significant and sustained decline in its earnings, possibly stemming from a severe downturn of the global luxury market and a deterioration in LVMH's key brands or in key markets. Moody's could also lower LVMH's rating if its financial policy becomes more aggressive or if the credit quality of the group's controlling holding companies deteriorates significantly. Quantitatively, a downgrade could occur if Moody's-adjusted debt/EBITDA moves towards 3x or if Moody's-adjusted FFO/net debt falls to 35% or below for a prolonged period. Moody's could tolerate a temporary deterioration in case of a sizable acquisition provided LVMH's credit metrics return to levels commensurate with our expectations for the A1 rating within a reasonable timeline.
LIST OF AFFECTED RATINGS
Affirmations:
..Issuer: LVMH Moet Hennessy Louis Vuitton Inc.
....BACKED Commercial Paper, Affirmed P-1
..Issuer: LVMH Moet Hennessy Louis Vuitton SE
....LT Issuer Rating, Affirmed A1
....ST Issuer Rating, Affirmed P-1
....Senior Unsecured Medium-Term Note Program, Affirmed (P)A1
....Commercial Paper, Affirmed P-1
....Senior Unsecured Regular Bond/Debenture, Affirmed A1
..Issuer: Tiffany & Co.
....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed A1
Outlook Actions:
..Issuer: LVMH Moet Hennessy Louis Vuitton Inc.
....Outlook, Changed To Positive From Stable
..Issuer: LVMH Moet Hennessy Louis Vuitton SE
....Outlook, Changed To Positive From Stable
..Issuer: Tiffany & Co.
....Outlook, Changed To Positive From Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Consumer Packaged Goods published in June 2022 and available at https://ratings.moodys.com/api/rmc-documents/389866. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
COMPANY PROFILE
Headquartered in Paris, France, LVMH is the world's largest luxury group. LVMH comprises about 75 key brands, or Maisons, gathered in six business groups: fashion and leather goods, wines and spirits, perfumes and cosmetics, watches and jewelry, selective retailing and other activities. In the 12 months ended June 2022, LVMH reported revenue of €72 billion and EBITDA of €25 billion. Its main shareholder is the Arnault Family Group, which held 48.0% of the share capital and 63.7% of the voting rights as of 30 June 2022.
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 on https://ratings.moodys.com/rating-definitions.
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 issuer/deal page for the respective issuer on https://ratings.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 https://ratings.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 https://ratings.moodys.com/documents/PBC_1288235.
At least one ESG consideration was material to the credit rating action(s) announced and described above.
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 https://ratings.moodys.com.
Please see https://ratings.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 issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.
Marie Fischer-Sabatie
Senior Vice President
Corporate Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris, 75008
France
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Victoria Maisuradze
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
