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14 Nov 2008
Moody's changes Metro AG's outlook to negative
Approximately USD 5bn in rated securities affected
London, 14 November 2008 -- Moody's Investors Service today affirmed the Baa2 issuer and senior unsecured
and P-2 short-term ratings of Metro AG ('Metro',
or 'the company'); the outlook is negative.
The change in outlook to negative from stable reflects Moody's view
that given the difficult retail environment in parts of Western Europe
and potentially in some of the emerging markets in which Metro operates,
the company's metrics are expected to remain weak for the rating
category or potentially weaken over the medium term. Moody's
further notes the company's high reliance on short-term funding,
although Moody's notes that the company has to date retained solid
access to the CP markets.
Moody's expects the company's leverage to remain at about
4 times in the current fiscal year, which is deemed high for the
rating category, albeit the rating takes into consideration the
scale and diversity, both in terms of segments and geography,
of the company's operations. The company retains its objective
of achieving sales growth in excess of 6% and 6-8%
growth in EBIT before special items in 2008, benefiting from new
store openings and capital expenditures in excess of EUR2.2 billion.
Metro's liquidity is underpinned by a cash balance as of 30 September
2008 EUR 1.8bn (including EUR550 million in time deposits with
tenors above three months, although Moody's does not factor
these into its liquidity assessment) as well as access to just under c.
EUR 3.2bn of syndicated undrawn credit facilities with maturities
beyond one year. The company also retained access to committed
bilateral credit lines, of which EUR 586mn were undrawn.
The company reported EUR 4.5bn of short-term financial liabilities
at that time, versus EUR 2.7bn at year-end 2007,
reflecting the seasonal nature of the business. Moody's notes
also the maturity of a EUR750 million bond in October 2009.
Moody's notes that the company's funding needs are highest in the first
half year, and are covered largely through issuance of commercial
paper, for which the company retains access to its two commercial
paper programmes, a EUR 2.0bn Euro commercial paper programme
and a EUR 3.0bn BT programme in France. While Metro is still
able to issue in both CP markets, the volume of CP issuance and
pricing is affected by current market conditions. The company has
announced a reduction in capex to around EUR2 billion in 2009 and maintains
additional flexibility as 75% of its capex is deemed discretionary.
Moody's cautions that in the absence of the CP markets, and
in light of the company's limited free cash flow generation in recent
years, the company would potentially be required to reduce capital
outlays to meet its short-term financial obligations, which
tend to peak at mid-year.
The negative outlook reflects Moody's view that metrics remain weak
for the rating, and the uncertain environment for funding.
The outlook could be stabilized if credit metrics were to be sustained
with RCF/Net Debt remaining solidly in the mid-to-high teens
and Debt / EBITDA trending below 4x, possibly due to improved operating
performance in food retailing, or asset disposals. The maintenance
of an adequate liquidity profile would also be a prerequisite for a stabilisation.
Negative pressure could develop on the rating if credit metrics were to
weaken sustainably, possibly due to a weakening in higher growth
markets, or if concerns were to develop about liquidity.
Metro AG, based in Dusseldorf, Germany, is one of the
world's largest retailers, and is focused on four major formats:
Cash & Carry wholesale (Metro and Makro brands), food retailing
through the Real format, consumer electronics (Media and Saturn),
and department stores (Kaufhof). In 2007, the company reported
sales from continuing operations and EBIT of EUR 64.3bn and EUR2.1
billion, respectively.
Paris
Myriam Durand
Managing Director
Corporate Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
London
Richard Morawetz
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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