Tokyo, October 27, 2020 -- Moody's Japan K.K. has affirmed the A3 issuer rating of
Kirin Holdings Company, Limited, along with its (P)A3 senior
unsecured shelf rating and the A3 senior unsecured rating.
At the same time, Moody's has changed the outlook to negative
from stable.
The rating action reflects Moody's assessment of Kirin's credit
quality, including the relative competitive conditions in its operating
environment, its evolving business mix and the impact of the coronavirus
pandemic.
RATINGS RATIONALE
"The negative outlook reflects Kirin's weak margins when compared
to its peers and uncertainty around its ability to improve profitability
relative to the previous levels over the next few years," says Mariko
Semetko, a Moody's Vice President and Senior Credit Officer.
Moody's expects Kirin's profitability will likely lag that
of peers, even after the beverage industry emerges from the coronavirus
pandemic.
In its struggle to expand in the highly competitive Japanese beverage
market, Kirin has been exiting domestic and overseas low-margin
businesses and is seeking to replace them and grow through non-beverage
businesses, such as its 2019 FANCL acquisition. It is unclear
whether and when profit from its evolving health science and food related
businesses will offset the weakness in its core beverage and Australian
segments.
Moody's anticipates that Kirin's profitability will remain
below that of global peers engaged in beer businesses. While Moody's
forecasts the company's EBITA margin, at 10.2%
for the 12 months to 30 June 2020, to improve gradually towards
2022, it will continue to lag that of its alcoholic beverage peers
such as Heineken N.V. (Baa1 stable) and Carlsberg Breweries
A/S (Baa2 stable), whose EBITA margins were in the high-teens
prior to the pandemic. Kirin's margin will likely also remain
weak relative to that of Japanese peers Asahi Group Holdings, Ltd.
(Baa1 negative) and Suntory Holdings Limited (Baa2 stable).
At the same time, the affirmation of the A3 ratings reflects the
relatively moderate impact of the pandemic on Kirin's domestic alcoholic
beverage and soft drink businesses and some diversification benefit and
higher margins from its pharmaceuticals segment. The company has
maintained conservative financial policies.
We expect EBITDA will decline this year from the pandemic, but relative
to its peers, its limited exposure to on-premise sales will
likely help contain the increase in leverage -- as measured by debt/EBITDA
-- to the high 3.0x range to 4.0x in 2020 from 2.7x
in 2019.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings outlook is negative. The outlook reflects the potential
that Kirin's margins will remain low relative to its global peers,
given the highly competitive conditions in its core domestic beverage
business and the uncertain contributions from its evolving non-beverage
investments.
Given the negative outlook, the ratings are unlikely to be upgraded
in the near term. However, Moody's could change Kirin's
outlook to stable if the company demonstrates a path toward sustaining
EBITA margin approaching the mid-teens and debt/EBITDA to below
2.75x.
The ratings could be downgraded if the company is unable to demonstrate
a path toward a timely recovery of its profit and leverage amid the competitive
conditions in its core business and its efforts to diversify its business
mix into new areas. Credit metrics Moody's could consider
include lack of progress in reducing debt/EBITDA towards 2.75x
or EBITA margin in the low 10% range.
The principal methodology used in these ratings was Alcoholic Beverages
Methodology (Japanese) published in March 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1214556.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Kirin Holdings Company, Limited, headquartered in Tokyo,
is one of the largest producers of alcoholic and soft beverages in Japan.
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
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The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
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Mariko Semetko
VP - Senior Credit Officer
Corporate Finance Group
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100
Mihoko Manabe
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100
Releasing Office:
Moody's Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100
