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Rating Action:

Moody's upgrades Carrefour's rating to (P)Baa1; outlook changed to stable

18 Jun 2015

NOTE: On December 30, 2015, the press release was corrected as follows: In the third paragraph of the REGULATORY DISCLOSURES section, changed the unsolicited credit ratings disclosure to: “This rating was not initiated or not maintained at the request of the rated entity”; in the fourth paragraph of the REGULATORY DISCLOSURES section, changed the participating rated entity in unsolicited credit ratings disclosures to: “Moody’s considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody’s. On this basis, the rated entity or its agent(s) is considered to be a participating entity. The rated entity or its agent(s) generally provides Moody’s with information for the purposes of its ratings process”. Revised release follows.

London, 18 June 2015 -- Moody's Investors Service has today upgraded to (P)Baa1 from (P)Baa2 on review for upgrade the long-term senior unsecured MTN Programme rating of Carrefour S.A.. Concurrently, Moody's has affirmed the short-term (P)P-2 rating of Carrefour S.A.. The outlook on the rating is stable.

"Our decision to upgrade Carrefour's rating reflects a reduction in the retailer's adjusted debt, following an update to Moody's approach for capitalising operating leases," says Sven Reinke, a Moody's Vice President -- Senior Analyst and lead analyst for Carrefour. "Its new (P)Baa1 rating also considers Carrefour's improving financial profile due to the sustainable turnaround of the company's French operations."

Moody's updated approach on standard adjustments for operating leases is explained in the cross-sector rating methodology "Financial Statement Adjustments in the Analysis of Non-Financial Corporations", published on 15 June 2015.

https://www.moodys.com/research/Moodys-updates-its-global-methodology-for-financial-statement-adjustments--PR_327853

RATINGS RATIONALE

Today's rating action reflects significant improvements to Carrefour's key credit metrics following changes to Moody's approach for standard adjustments for operating leases. For example, Carrefour's lease adjusted gross debt/EBITDA ratio was 3.3x and its retained cash flow/net debt ratio was 25.4% in 2014, when considering the revised methodology.

Moody's recognises Carrefour's significant improvement in its French home market where it recorded three semesters of consecutive like-for-like sales growth (excluding petrol) since H2 2013 and a 37.9% increase in recurring operating income over the past two years. Operating margin in France improved substantially by 100bps from 2.6% in 2012 to 3.6% in 2014 and H2 2014 was the fifth consecutive semester of improved year-on-year operating profitability, with an operating margin of 4.1% (3.9% in H2 2013). Carrefour made significant progress in France with a number of measures, including improved price positioning, its multi-year store renovation program and supply chain rationalisation.

Whilst Carrefour's recovery in France was already evident in 2013, its 2014 results also indicate a stabilisation and gradual recovery in Europe excluding France, where the company benefits from improving market conditions (in particular in Spain). Additionally, Carrefour has been growing its sales profitably in Latin America, with recurring operating income at constant exchange rates improving by 23.2% in 2014.

However, Moody's notes that Carrefour's performance in China has deteriorated, driven by weak demand and wage inflation. Operating margin in Asia lowered from 2.8% in 2012 to 2.0% in 2013 and 1.5% in 2014. Carrefour remains committed to the market and targets performance improvements, with an integration of the supply chain supported by its own logistics and distribution capabilities.

Driven by improved EBITDA generation and reduced gross debt as the company applied a portion of its large cash balance to debt reduction over the past two years, Carrefour's leverage updated for the revised methodology for capitalising operating lease, measured as debt/EBITDA, lowered materially to 3.3x in 2014 from 4.4x in 2012. Carrefour's retained cash flow (RCF)/net debt metric remained healthy and largely unchanged at around 25%. In addition, the company's interest coverage strengthened in recent years following higher profitability, as well as gross debt reduction and more favourable refinancing conditions that have resulted in materially lower interest expenses.

Carrefour's (P)Baa1/(P)P-2 senior unsecured and short-term ratings reflect the company's solid business risk profile, with significant exposure to food retail and growth markets. Carrefour is also one of the most geographically diversified among Moody's-rated retailers, while in terms of scale it is one of the largest retailers globally. The rating however, reflects the weaker performance in some markets such as Italy and China where Carrefour suffers from an adverse economic environment and a less-favourable market position. The rating further factors in the company's solid liquidity profile, with a well-balanced debt maturity schedule and substantial reduction in gross debt since the peak in FY2010.

RATIONALE FOR THE STABLEOUTLOOK

The stable outlook reflects Moody's view that Carrefour will continue to grow earnings, leading to gradually improving credit metrics over the next 12-18 months. Whilst Carrefour's recovery since 2011 was mainly driven by its turnaround in France, Moody's expects that the company will improve profitability in Europe excluding France and to continue its profitable sales growth in Latin America.

WHAT COULD CHANGE THE RATING UP/DOWN

Positive rating pressure could be exerted on Carrefour's rating if the company's:

• adjusted gross leverage falls below 3.0x; and

• retained cash flow/net debt remains at 25%

Conversely, the rating or outlook could come under negative pressure if Carrefour's:

• adjusted leverage rises above 3.5x; or

• retained cash flow/net debt falls below 20%

as a result of operating underperformance or if the company were to resume aggressive shareholder-oriented initiatives.

PRINCIPAL METHODOLOGIES

The principal methodology used in these ratings was Global Retail Industry published in June 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Carrefour S.A. is one of the world's largest retailers in terms of revenues. It retains operations in countries in Europe, Latin America and Asia, with Carrefour, Carrefour Market, Carrefour Express, and Atacadao being among its major banners. It also operates under the hypermarket, supermarket, convenience store and cash & carry formats. In 2014, Carrefour reported net sales and recurring operating income of EUR74.7 billion and EUR2.4 billion, respectively.

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.

This rating was not initiated or not maintained at the request of the rated entity.

Moody’s considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody’s. On this basis, the rated entity or its agent(s) is considered to be a participating entity. The rated entity or its agent(s) generally provides Moody’s with information for the purposes of its ratings process.

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.

Sven Reinke
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Michael J. Mulvaney
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's upgrades Carrefour's rating to (P)Baa1; outlook changed to stable
No Related Data.
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