TEXT-S&P rpt:Luxury goods firms lustre may fade,not vanish in 2013

Thu Dec 20, 2012 7:09am EST

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(The following statement was released by the rating agency)

Dec 20 - Luxury goods manufacturers won't retain the immunity from tough global economic conditions they've enjoyed for the past two years in 2013, but they'll still grow and hang on to their decent credit metrics, said Standard & Poor's Ratings Services today in the report: "The Luxury Goods Industry's Lustre Will Fade But Not Disappear In 2013".

The French luxury goods manufacturers LVMH Moet Hennessy Louis Vuitton S.A. (LVMH; A/Positive/A-1), PPR S.A.'s luxury division (BBB/Stable/A-2), and Remy Cointreau's cognac division (BB+/Positive/--) should post high-single-digit revenue growth and see slightly falling margins next year, the report says. In 2011 the three posted soaring organic growth rates of 14%, 22%, and 25%, respectively, and 2012 growth has so far been lower, especially in the third quarter.

"We believe luxury goods makers' profit margins are likely to be a bit lower this year, but they'll probably still be the highest in the consumer goods sector," said Standard & Poor's credit analyst Caroline Duron. We expect cash flow generation to remain fairly strong, and despite our expectations for sluggish economic conditions, all of the industry's groups have stable or positive outlooks, reflecting our view that credit quality should be preserved unless there is a severe economic downturn.

"Luxury goods makers have already proved their ability to manage in a crisis," said Ms. Duron. "They've protected their credit metrics by increasing prices, cutting capex, postponing external growth, reducing shareholder remuneration, and entering buoyant new economies. Their liquidity also protects them against deteriorating operations."

The luxury goods industry's robust performance translated into numerous positive rating actions this year. With the exception of Aston Martin Holdings (UK) Ltd. (B+/Stable/--), premium carmakers like Volkswagen AG (A-/Positive/A-2), which owns Audi and Porsche, have also seen positive rating actions in 2012.

Potential acquisitions would pose the main threat to luxury goods manufacturers' credit profiles, the report concludes.

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