September 27, 2013 / 3:55 PM / 4 years ago

Fitch Affirms Compass at 'A-'; Outlook Stable

(The following statement was released by the rating agency) LONDON, September 27 (Fitch) Fitch Ratings has affirmed UK-based food services company Compass Group PLC's (Compass) Long-term Issuer Default Rating (IDR) and senior unsecured ratings at 'A-' and affirmed the Short-term IDR at 'F2'. The Outlook is Stable. The affirmation reflects Compass's steady growth and consistent positive free cash flow (FCF) generation over the past few years resulting from the company's strong customer and geographic diversification and stable retention rate regularly above 90%. In addition to maintaining a strong balance sheet, Fitch expects the group will continue to expand through additional net new business wins and bolt-on acquisitions. KEY RATING DRIVERS Stable Business Profile Compass's business profile benefits from a diversified customer base, strong customer retention rate and geographical diversification. Compass has been increasing its presence in fast-growing emerging markets (19% of H113 sales) in recent years which have helped to offset weakness in European markets. Weak Southern Europe Stagnant economic growth and persistently high unemployment have weighed on like-for-like sales volumes in Europe and Japan, and most notably in southern Europe. Compass has offset these pressures through active management of its variable cost base. Strength in Emerging Regions Compass is placing a strong emphasis on growth segments and emerging economies. As such, Fitch expects investment in management teams and generation of cost efficiencies by Compass in 2013 to support further market penetration and maintain top-line growth. Stable Financial Metrics Fitch projects lease-adjusted funds from operations (FFO) leverage ratios to improve in FY13 to 2.3x from 2.6x at FY12 due to increased profitability. Fitch projects Compass's metrics to remain stable over the intermediate term. Strong Cash Position The group's H113 cash position is strong at GBP674m and is expected to remain stable over the medium term. Compass's liquidity is further supported by an undrawn GBP700m five-year committed bank facility that matures in May 2017. Infill Acquisitions Strategy Following the one notch upgrade of the ratings in 2012, Fitch's analysis continues to focus on the company's cash deployment strategy. The company is projected to maintain adequate financial flexibility to complete infill acquisitions and support shareholder return programmes while maintaining a financial profile consistent with the assigned 'A-' rating. Continuing Share Buy-Backs In its rating case projections, Fitch assumes, on average, around GBP800m between dividend payments, share buy backs and bolt-on acquisitions per annum through 2016. RATING SENSITIVITIES Negative: Future developments that could lead to negative rating action include: -Negative organic sales growth and significant EBITDA margin erosion -FFO adjusted gross leverage remaining above 3.0x either as a result of operational weakness or a large debt-funded acquisition -FFO fixed charge cover below 4.5x -FCF (pre-dividends)/total adjusted debt below 20% Positive: Fitch is unlikely to upgrade the ratings due to the low operating margin characteristics of the industry, modest FCF margin, and the asset-light nature of the business. Contact: Principal Analyst Bryant Bedwell Associate Director +44 020 3530 1581 Supervisory Analyst Jean-Pierre Husband Director +44 020 3530 1155 Fitch Ratings Limited 30 North Colonnade London E14 5GN Committee Chair Pablo Mazzini Senior Director +44 020 3530 1021 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com. For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. Applicable criteria, 'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage', dated 5 August 2013', is available at www.fitchratings.com. Applicable Criteria and Related Research: Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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