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Feb 12 (The following statement was released by the rating agency)
Fitch Ratings said that Nestle's decision to
buy back its shares with cash proceeds from the divestment of an 8% stake in
L'Oreal (F1+) would only represent a partial pass-through of cash to
shareholders, if limited to the EUR3.4bn (CHF4.1bn) L'Oreal proceeds. The agency
therefore would not expect any impact on Nestle's 'AA+' Issuer Default Rating
from a share buyback of this magnitude even though the company's leverage was
unlikely to have reduced sufficiently in FY13 to provide headroom for share
Nestle will announce its annual results on 13 February, which should provide us
with greater insights into its credit metrics and rating headroom.
Nestle's 'AA+' rating is based on Fitch's expectation that the company will
achieve and maintain a lease-adjusted net debt/EBITDAR leverage of below 1.0x as
well as retaining its well-diversified portfolio of businesses by product and
geography, in turn supporting its healthy cash flow and operating profit margin.
Following acquisition activity which had led to an increase in leverage to 1.3x
in 2012, Nestle decided not to launch a new share buy-back programme after 2011.
This, together with the prospects of improved free cash flow generation, should
bring leverage back below 1.0x, a level consistent with its 'AA+' rating.
Nestle's other divestments of non-core assets (Jenny Craig, PowerBar, a 10%
stake in fragrance-maker Givaudan) should further contribute to achieving the
target leverage at FYE13, despite potentially slower-than-expected organic
growth in 2013.
Fitch views the L'Oreal transaction as a signal of Nestle's intention to
gradually divest its remaining 23.3% stake in L'Oreal over the long-term (worth
EUR17.5bn at current market prices) and use the proceeds for a combination of
M&A and share distributions while protecting its credit metrics. However,
further sales of L'Oreal shares owned by Nestle directly to L'Oreal or to the
other major L'Oreal shareholder Madame Bettencourt are unlikely as this would
bring the stake of Madame Bettencourt above the threshold of 33.33% and trigger
a mandatory take-over offer.