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Rating Action:

Moody's changes SABMiller's outlook to positive; affirms Baa1/P-2 ratings

01 Oct 2014

Approximately USD13.9billion of rated debt affected

Milan, October 01, 2014 -- Moody's Investor Service has today affirmed the Baa1 long-term senior unsecured ratings of SABMiller Plc (SABMiller), the provisional (P)Baa1 rating of its medium-term note programme (MTN) and the Baa1 senior unsecured ratings of its guaranteed subsidiaries. Concurrently, Moody's also affirmed SABMiller's and its guaranteed subsidiaries P-2 short-term ratings, the Baa1 issuer rating of Foster's Group Pty Limited and the national scale ratings of Aa3.za/P-1.za assigned to SABSA Holdings limited. The outlook has been changed to positive.

RATINGS RATIONALE

"Today's change in outlook reflects the company's improvements in operating performance and strengthened business profile over recent years and our expectations that the company will further improve, albeit modestly, its credit metrics," says Paolo Leschiutta, a Moody's Vice President -- Senior Credit Officer and lead analyst for SABMiller. "With financial leverage of 2.7x, measured as Moody's-adjusted debt to EBITDA, and EBITA margins of around 33% as of end of March 2014, SABMiller's credit metrics are on the right trajectory for a rating transition within the next 12 to 18 months," continued Mr. Leschiutta.

Despite soft beer volumes in developed markets and a reduced pace of growth in emerging markets, SABMiller achieved 3% and 6% organic revenue growth (including share of associates) in the fiscal year ending (FYE) March 2014 and in the first quarter ending June 2014 respectively. Reported figures have been significantly affected by the weakening local currency in key markets such as South Africa. However the positive momentum in volume growth in a number of emerging countries should continue to support SABMiller's earnings growth and cash generation, allowing the company to follow its deleveraging path.

SABMiller's ratings reflect the company's large scale and diversity as the world's second largest brewing company by volume, its international footprint and increased geographic diversification, a good track record of integrating acquisitions and reducing leverage and the company's strong margins and recurring cash flow from operations. At the same time, the ratings factor in the company's exposure to emerging markets, the difficult consumer environments in North America and Western Europe, and the still weak, albeit expected to improve cash flow coverage metrics (retained cash flow to net adjusted debt of 19.9 % as of March 30, 2014).

Moody's notes the good geographic diversification of SABMiller's markets with no single geographic area accounting for more than 28% of reported net revenues and 34% of reported EBITA (including associates) compensates for the somewhat higher volatility of emerging economies.

Moody's recognises that SABMiller's profitability and business profile have improved significantly over the last three years and financial leverage has reduced since the peak reported in 2011. The acquisition of the Australian brewer Foster's in 2011 helped the company to balance its presence between emerging and developed markets, while a strong presence in Latin America and Asia allowed the company to increase its EBITA margins (including share of MillerCoors profits) to around 33% in FYE March 2014 on a Moody's-adjusted basis, only modestly behind its bigger competitors Anheuser-Busch InBev SA/NA (A2 positive) recording a 36% margin at year end 2013.

In addition, the company's stable financial policy and solid liquidity position supports Moody's expectation of continuing improvement in key credits metric for the next 12-18 months. Moody's expectations do not factor in any large debt funded acquisition, or any significant shareholders returns, but positively notes SABMiller's strong track record of integrating acquisitions and capability to reduce its debt in a reasonable time.

RATIONALE FOR THE POSITIVE OUTLOOK

The positive outlook on SABMiller's Baa1 rating reflects Moody's expectation that the group will (1) further succeed in improving group-wide operating performance, in terms of top-line earnings and profitability (also thanks to improving cost reduction and selective price increases); and (2) continue to improve its key credit metrics over the next 12-18 months, maintaining a conservative financial policy and a solid liquidity profile at all times.

WHAT COULD CHANGE THE RATING - UP/DOWN

Positive pressure on SABMiller's ratings could follow if the company demonstrated its ability and intention to maintain on an ongoing basis (1) financial leverage, measured as debt/EBITDA (as adjusted by Moody's for operating leases and pension deficit) around 2.5 x; and (2) a retained cash flow (RCF) to net debt ratio in the mid-20s.

Negative pressure on SAB's ratings and outlook could arise in case of a large debt-financed acquisition, significant increase in shareholders' return or sustained growth reduction in key markets, leading the company's credit metrics to deteriorate, with a financial leverage above 3x, for a prolonged period, and EBITA margins (including share of MillerCoors profits) significantly below 25%.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Global Alcoholic Beverage Industry published in October 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Moody's National Scale Credit Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale credit ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".za" for South Africa. For further information on Moody's approach to national scale credit ratings, please refer to Moody's Credit rating Methodology published in June 2014 entitled "Mapping Moody's National Scale Ratings to Global Scale Ratings".

SABMiller plc is the world's second-largest brewer by volume, producing and distributing a large variety of beer brands in approximately 75 countries. During FY ending March 2014, the company sold 245 million hectolitres of lager and 65 million hectolitres of soft drinks (including the share of joint ventures and associates), up 1% and 5% organically during the year, for total revenue (before excise duties and share of associates and joint ventures) of USD22.3 billion (down 4% compared with the prior year).

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

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

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.

Paolo Leschiutta
VP - Senior Credit Officer
Corporate Finance Group
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
Telephone:+39-02-9148-1100

Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
Telephone:+39-02-9148-1100

Moody's changes SABMiller's outlook to positive; affirms Baa1/P-2 ratings
No Related Data.
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