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TEXT-Fitch upgrades Pernod Ricard SA to 'BBB-'
October 23, 2012 / 4:40 PM / 5 years ago

TEXT-Fitch upgrades Pernod Ricard SA to 'BBB-'

Oct 23 - Fitch Ratings has upgraded Pernod Ricard SA's (Pernod) Long-term
foreign currency Issuer Default Rating (IDR) and senior unsecured rating to
'BBB-' from 'BB+', and Short-term IDR to 'F3' from 'B'. The Outlook is Stable.

The upgrade reflects the achievement of an adequate liquidity position and
steady de-leveraging during the financial year ended June 2012 (FY12) as well as
Fitch's comfort that future financial policies, combined with moderate and
resilient free cash flow (FCF) generation, should afford the company the
resources to satisfy its - albeit limited - M&A ambitions.

Despite possible cash outlays for some bolt-on acquisition spending, Pernod
should manage to retain lease and factoring adjusted net debt/operating EBITDAR
at or below 4.0x. Acquisition spending prejudicing a continuation of the past
de-leveraging process would however further affect the company's tight financial
flexibility at the 'BBB-'rating level.

With a lease and factoring adjusted net debt/funds from operations (FFO) ratio
of 5.8x at FYE12, as Fitch's preferred leverage measure, Pernod's credit metrics
remain weaker than those of 'BB+' and 'BBB-' rated peers in the alcoholic
beverage, tobacco and leisure sectors. Fitch projects that, in the absence of
M&A activity this ratio should drop below 5.0x by FYE14. High leverage is
mitigated by the company's strong and resilient business profile, as well as the
magnitude of its annual FCF generation which, at EUR440m in FY12, is larger than
higher rated spirits peers Beam Inc ('BBB'/Stable Outlook) and Brown Forman
('A+'/Stable Outlook) although smaller than peers in the beer sub-sector.

In order to accommodate sharply growing demand for Scotch whisky and cognac,
Pernod is now investing to increase both production capacity and stocks of
maturing inventories. Consequently, Fitch projects that the growth of cash flow
generation will be held back over the period FY13-FY15 by heavier working
capital absorption and higher capex. Despite increased investments in maturing
inventories, Fitch expects Pernod to be able maintain FCF above EUR400m per

Pernod's volume size, brand and category portfolio, as well as geographic
diversification, with important presences both in mature and developing markets,
place its operations in a different league to other industry players. This
profile underpins its capacity to generate consistent organic revenue and profit
growth and alleviate pressure for M&A activity.

As a point of vulnerability, Fitch notes that Pernod's organic growth has been
more than proportionately driven by the sale of high-end products (notably
long-aged whiskies, cognacs and champagne) in its Asian markets. At the same
time, Fitch notes that in the event of a slow-down of this market the company
would be in a position to flex some of its advertising & promotion expenditure
in order to protect its profits.


Negative: Future developments that may, individually or collectively, lead to a
negative rating action include:

- Net Lease and factoring adjusted debt / FFO greater than 5.0x
- Fixed charge cover ratio under 3.0x
- EBITDA margin dropping below 25% and FCF below EUR200m on a sustained basis

Positive: Although Fitch considers the scope for an upgrade to be limited until
at least 2014, upward rating pressure could materialise in the presence of:

- Net Lease and factoring adjusted debt / FFO under 3.5x - 3.7x
- Fixed charge cover ratio above 5.0x.

A pre-condition for an upgrade would be Pernod maintaining FCF above EUR700m and
preserving its position within the top three players in the industry.

Additional information is available at

The ratings above were solicited by, or on behalf of, the issuer, and therefore,
Fitch has been compensated for the provision of the ratings.

Applicable criteria, 'Corporate Ratings Methodology', dated 9 August 2012 is
available at

Applicable Criteria and Related Research:
Corporate Rating Methodology

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