Fitch downgrades Carrefour's Issuer Default Rating, senior unsecured Rating to BBB from BBB+, citing weak 2011 trading performance, 19% drop in operating income, challenges surrounding competitive profile of French, Italian hypermarkets

Cindy Allen

Cindy Allen

PARIS , March 14, 2012 (press release) – Fitch Ratings has downgraded Carrefour S.A.'s (Carrefour) Long-term Issuer Default Rating (IDR) and senior unsecured rating to 'BBB' from 'BBB+'. The Outlook on the Long-term IDR is Stable. The Short-term rating has been downgraded to 'F3' from 'F2'.

"The downgrade follows Carrefour's weak 2011 trading performance with a 19% drop in its current operating income and the group's ongoing challenges to improve the competitive profile of its French and Italian hypermarkets," says Johnny DaSilva, Director in Fitch's Corporate team. With lease-adjusted net debt (excluding its services operations) to EBITDAR ratios of 3.3x (3.1x before exceptional), Carrefour's leverage is line with a 'BBB' rating.

The key challenge for Carrefour remains the successful execution and improvement of its operations in France, notably in its large hypermarket stores and the stabilisation of group's operating profit in Europe. After putting on hold the roll-out of its Planet stores, Fitch understands that the new management team is now focused on fixing the basics (adjusting price, reducing promotions, sorting out the product assortment, reducing inventories turnover, launching commercial initiatives) to lure customers back to its stores.

However, Fitch also notes ongoing price pressure in the food retail industry in Europe due to government austerity measures, high unemployment rate as well as intense competition in the non-food segment from specialist retail chains and the development of internet shopping. The group remains mainly exposed to a weak consumer environment in Europe (72% of group sales), notably in southern countries such as Italy, Spain, Greece which represent about 20% of group sales. These concerns are mitigated by the group's organic growth in emerging markets, notably in Brazil and China.

Fitch views positively Carrefour's more cautious financial strategy, as evidenced by the reduction of the group's dividend payout ratio and the focus on cash flow with strict capex discipline. Fitch expects a gradual improvement in Carrefour's metrics over the next 18 months.

The company's liquidity remains adequate, with cash and equivalents at end-December 2011 of EUR4.8bn and EUR3.25bn in undrawn credit facilities maturing in 2012 and 2015 with no financial covenants.

The rating could improve with evidence of a recovery on Carrefour's performance in its core French market in terms of sales growth, market share, operating profit and subject to group's operating margin rising above 3.3% (2.7% as of FYE11). In terms of credit metrics, for an upgrade, Fitch would expect Carrefour's adjusted net debt to EBITDAR ratio to return to a range of
2.5x-3.0x.

Negative pressure on the rating could occur if the group's operating margin is below 2.5%, the group's lease-adjusted net debt to EBITDAR ratio increases to 3.5x or if the group initiates any further shareholder-friendly measures over the next 18 months.

Fitch could upgrade the Short-Term rating to 'F2' if Carrefour meets the agency's 'Short-Term Rating Criteria for Non-financial Corporates' (dated January 2012 at www.fitchratings.com), two out of three internal liquidity ratios and notably FCF/EBITDAR >20% and FFO/debt service ratios >1.5x.


Additional information is available on www.fitchratings.com. The ratings above were unsolicited and have been provided by Fitch as a service to investors.

Applicable criteria, 'Corporate Rating Methodology' dated 12 August 2011 are available at www.fitchratings.com.

Applicable Criteria and Related Research:
Corporate Rating Methodology

* All content is copyrighted by Industry Intelligence, or the original respective author or source. You may not recirculate, redistrubte or publish the analysis and presentation included in the service without Industry Intelligence's prior written consent. Please review our terms of use.

Share:

About Us

We deliver market news & information relevant to your business.

We monitor all your market drivers.

We aggregate, curate, filter and map your specific needs.

We deliver the right information to the right person at the right time.

Our Contacts

1990 S Bundy Dr. Suite #380,
Los Angeles, CA 90025

+1 (310) 553 0008

About Cookies On This Site

We collect data, including through use of cookies and similar technology ("cookies") that enchance the online experience. By clicking "I agree", you agree to our cookies, agree to bound by our Terms of Use, and acknowledge our Privacy Policy. For more information on our data practices and how to exercise your privacy rights, please see our Privacy Policy.