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Corporates
Food, Beverage & Tobacco / Netherlands
Royal FrieslandCampina NV
24 September 2019 1
Royal FrieslandCampina NV
Rating Type Rating Outlook Last Rating Action
Long-Term IDR BBB+ Negative Affirmed 17 September 2019
Short-Term IDR F2 Affirmed 17 September 2019
Click here for full list of ratings
Financial Summary
(EURm) Dec 2017 Dec 2018 Dec 2019F Dec 2020F Dec 2021F
Revenue 12,110 11,553 11,309 11,391 11,597
Operating EBITDA 930 754 852 893 928
Operating EBITDA Margin (%) 7.7 6.5 7.5 7.8 8.0
Free Cash Flow Margin (%) -2.1 0.3 -0.5 0.2 -0.4
FFO Adjusted Net Leverage (x) 2.6 2.9 2.6 2.4 2.5
Source: Fitch Ratings, Fitch Solutions
The Negative Outlook reflects execution risks related to the restoration of Royal FrieslandCampina NV ’s (RFC)
EBITDA margin and the risk that, follow ing a rise in 2019, leverage may fail to return to levels compatible w ith the
‘BBB+’ rating over the next tw o years. The company’s performance remains challenged by high competition in key
markets, supply chain issues and volatile milk prices. Fitch Ratings believes RFC has yet to demonstrate its ability to
fully address these issues.
RFC’s ratings are underpinned by its large scale in the global dairy market and balanced geographic footprint across
developed and emerging markets. The ratings also take into account our expectation that the company ’s
performance payments w ill be more aligned w ith accrued amounts over 2019-2022 and that management w ill
maintain a conservative f inancial policy, w ithout material M&A transactions until there is a sustained improvement in
profit and cash f low generation. Together w ith moderate capex, this supports our expectation of positive to only mildly
negative free cash f low (FCF) over the medium term.
Key Rating Drivers
EBITDA Recovery Is Taking Time: RFC reported an improvement in EBITDA in 1H19 after it fell in 2017 and 2018.
Nevertheless, w e are cautious in our assumptions of profit grow th over the next three years as w e believe that a
steady recovery depends on several factors outside of RFC’s control. The success of turnaround measures taken is
yet to be proven. We have therefore projected an EBITDA recovery that w ill take more time than w e previously
expected and believe that the EBITDA margin is likely to stay below our negative rating sensitivity of 9% (2018: 6.5%)
over the next three years. This is reflected in the Negative Outlook.
Milk Price Volatility Is Still Challenging: Profit grow th in 1H19 w as achieved primarily due to favourable product
mix changes in basic dairy products (cheese, butter and milk pow der) and the better alignment of the price of raw
milk w ith selling prices. How ever, the volatility of milk prices and of its fat and protein components is likely to continue
challenging the company ’s performance as RFC is still facing problems passing on milk protein price increases to
retailers for its value-added and basic dairy products. The company has taken measures to reduce margin volatility
and dependence on raw milk prices. A record of more sustained improvement in the profitability of the basic products
division w ould demonstrate the effectiveness of these actions.
Tough Competition in China: RFC’s performance remains challenged by tough competition in China, a strategically
important market that represents 7% of the company’s revenue, but w hich accounted for a substantial part of EBITDA
in 2018, based on our estimates, due to sales of high-value-added infant nutrition. We believe that there are
execution risks in RFC’s turnaround strategy as the Chinese infant nutrition market has become more complex due to
falling birth rates, tightening regulation and increased competition from international and local producers. RFC’s sales
in China have also been recently under pressure from the shortage of lactoferrin.
Corporates
Food, Beverage & Tobacco / Netherlands
Royal FrieslandCampina NV
24 September 2019 2
Fitch believes that innovation and premiumisation of product portfolios, development of new sales channels and
w idening of distribution to low er tier cities are key to protecting and grow ing RFC’s share in China’s infant nutrition
market.
Tight Rating Headroom: RFC’s funds from operations (FFO) adjusted net leverage peaked at 2.9x in 2018, a level
not compatible w ith the company’s ‘BBB+’ rating. How ever the group has deleveraged in 2019 and w e expect this to
continue. Yet w e expect rating headroom to stay tight over the medium term, w ith FFO-adjusted net leverage
remaining at or close to our negative rating sensitivity of 2.5x . Consequently, a low er-than-expected recovery in
operating profit, coupled w ith higher performance premium payments could lead to a dow ngrade.
Lower Performance Payments Assumed: A reduction in the member take-out of cash performance premium,
w hich Fitch treats as a dividend, is important for RFC’s deleveraging in 2019. The performance premium is linked to
the company’s performance and represents a small part of the milk price that RFC pays to farmers. How ever,
performance premium take-outs may deviate f rom accrued amounts as farmers tend to accumulate the RFC premium
ow ed to them by the company and to w ithdraw it w hen they need cash resources. For instance, in 2018 RFC
declared a performance premium of EUR48 million but paid farmers a materially higher amount. In our forecasts w e
assume that further payments to farmers w ill be more aligned w ith the accrued expense.
Conservative Financial Policy Assumed: The rating incorporates our expectation that RFC w ill maintain a
conservative f inancial policy in terms of cash performance payments to members, capex and M&A. We expect RFC
to continue to adhere to its historically conservative capital structure, although its internal leverage target allow s the
company to incur more debt.
Global Dairy Producer: RFC’s rating is supported by its position as the w orld’s sixth-largest dairy producer, w ith
w ell-know n brands in the Netherlands and various developing markets. RFC benefits from a w ide range of dairy -
based products from commoditised cheese and butter to high-value-added specialised nutrition, including infant
formula. RFC also enjoys geographic diversif ication and footprint across emerging markets and especially Asia,
w here long-term grow th fundamentals are strong. We view this as credit positive, even though the profits upstreamed
from these countries can be volatile.
Cooperative Set-up Neutral to Ratings: Fitch assesses RFC’s ow nership by a cooperative as neutral for the
ratings. We recognise the benefits of a reliable and stable supply of high-quality raw materials from cooperative
members but this is balanced by RFC’s obligation to collect and purchase all the milk produced by member farmers.
Milk supplies in excess of production capacity may lead to an inability to fully process milk into value-added products.
RFC has been able to keep the balance betw een its capacity and supplies from member farmers.
Corporates
Food, Beverage & Tobacco / Netherlands
Royal FrieslandCampina NV
24 September 2019 3
Rating Derivation Relative to Peers
Rating Deriv ation v s. Peers
Peer Comparison The dairy market is inherently volatile as raw milk prices and selling prices for dairy products are largely outside producers' control. Market volatility leads to instability in dairy companies’ profits and working capital. RFC’s high share of value-added products in its sales helps the company to achieve
greater control over sell ing prices and stronger profit margins than industry peers but does not fully isolate the company from high sector risks. Fitch therefore expects RFC to adhere to a more conservative capital structure than similarly rated peers in the packaged food sector.
RFC is not fully comparable with other rated peers operating in the dairy market, such as Nestle SA (AA-/Negative), Fonterra Co-operative Group Limited (A/Negative) and Dairy Farmers of America, Inc. (DFA, BBB/Stable). Nestle ’s credit profile is characterised by lower volatility than RFC due to the company's substantially smaller exposure to commoditised products and we ll-diversified operations
across various packaged food categories and geographies. Furthermore, Nestle's rating reflects the group’s strong market position as the largest food company globally and high profit margins, supported by strong brands.
Similarly to RFC, Fonterra’s and DFA’s operations are also concentrated on dairy products produced under a cooperative set-up. The companies have similar business scales. However, Fonterra ’s and DFA’s ratings benefit from effective subordination of milk payments to the company's principal and interest obligations (and other costs), as specified in their by-laws. This allows them to operate under
higher leverage than RFC.
Parent/Subsidiary Linkage No parent/subsidiary linkage is applicable.
Country Ceiling No Country Ceiling constraint was in effect for these ratings.
Operating Environment No operating environment influence was in effect for these ratings.
Other Factors Not applicable.
Source: Fitch Ratings
Navigator Peer Comparison
IDR/Outlook
BBB+/Neg a n bbb+ n bbb+ n bbb n bbb- n bbb n b+ n a n bbb+ nAA-/Neg aa- n aa- n aa+ n a+ n aa n aa n a+ n aa- n a+ nA/Neg aa n a n bbb+ n bbb n a n a- n bbb- n a n a- nBBB+/Sta bbb+ n a n bbb+ n bbb n bbb n bbb+ n bbb- n a+ n bbb+ nBBB/Sta aa n a- n bb+ n bbb n bbb- n bbb- n bbb- n bbb n bbb nBBB/Neg aa n a- n a- n bbb n bbb n a- n a n bbb- n bbb+ n
Source: Fitch Ratings. Importance n Higher n Moderate n Low er
Royal FrieslandCampina NV
Nestle SA
Fonterra Co-operative Group Limited
WH Group Limited
Flow ers Foods, Inc.
General Mills, Inc.
Financial
Structure
Financial
Flexibility
Financial profileIssuer
Management
and Corporate
Governance
Operational
Scale
Growth
Potential Business Profile Diversification Profitability
Operating
Environment
Business profile
Corporates
Food, Beverage & Tobacco / Netherlands
Royal FrieslandCampina NV
24 September 2019 4
Rating Sensitivities
Developments that May, Individually or Collectively, Lead to Lead to Revision of the Outlook to Stable
– Organic sales grow th of value-added products and sustained improvement in EBITDA margin, confirming the
company’s ability to w ithstand competitive pressures and smooth profit volatility .
– Positive FCF margin.
– Visibility of FFO adjusted net leverage falling below 2.5x in 2020-2021 on a sustained basis.
Developments that May, Individually or Collectively, Lead to a Downgrade
– Evidence that the group’s earning profile is subject to increased volatility on a sustained basis .
– Inability to recover EBITDA margin to 9%.
– Negative FCF, in the low single-digits of sales, for more than tw o years, driven by w eak operating performance,
aggressive f inancial policies or w ithdraw als of performance premiums from member accounts (treated as
dividends) substantially exceeding accrued amounts.
– FFO-adjusted net leverage persistently above 2.5x.
Liquidity and Debt Structure
Adequate Liquidity: At end-2018, the company had more than EUR1.2 billion of available liquidity, of w hich EUR240
million related to Fitch-adjusted readily available cash and EUR980 million w as represented by the undraw n portion
under EUR1 billion credit facility maturing in 2023. Liquidity is considered suff icient to cover short-term debt of
EUR616 million.
Corporates
Food, Beverage & Tobacco / Netherlands
Royal FrieslandCampina NV
24 September 2019 5
Liquidity and Debt Maturity Scenario with No Refinancing
Av ailable Liquidity (EURm) 2019F 2020F
Beginning Cash Balance 240 -400
Rating Case FCF after Acquisitions and Divestitures -24 17
Total Av ailable Liquidity (A) 216 -383
Liquidity Uses
Debt Maturities -616 -152
Total Liquidity Uses (B) -616 -152
Liquidity Calculation
Ending Cash Balance (A+B) -400 -536
Revolver Availability 980 980
Ending Liquidity 580 444
Liquidity Score 1.9 3.9
Source: Fitch Ratings, Fitch Solutions, RFC
Scheduled Debt Maturities Original
Statement Date 31 December 2018
2018 616
2019 152
2020 83
2021 160
2022 640
Thereafter 0
Total 1,651
Source: Fitch Ratings, Fitch Solutions, RFC
ESG Considerations
Unless otherw ise disclosed in this section, the highest level of ESG credit relevance is a score of ‘3’. ESG issues are
credit neutral or have only a minimal credit impact on the entity, either due to their nature or to the w ay in w hich they
are being managed by the entity.
RFC has an ESG Relevance Score of ‘4’ for Customer Welfare as safety of the company ’s products helps it to
differentiate itself from competitors in certain markets. This has a positive impact on the credit profile, and is relevant
to the rating in conjunction w ith other factors.
For more information on our ESG Relevance Scores, visit w w w .fitchratings.com/esg.
Corporates
Food, Beverage & Tobacco / Netherlands
Royal FrieslandCampina NV
24 September 2019 6
Key Assumptions
Fitch’s Key Assumptions within Our Rating Case for the Issuer Include:
– Revenue grow th in low single-digit from 2020, supported by grow th in sales of value-added products;
– Gradual improvement in EBITDA margin tow ards 8.5% in 2022;
– Stable profit distribution policy (55% added to equity, 10% distributed to farmers shareholders as f ixed-member
bonds and 35% distributed as performance premium – accounted as dividends by Fitch) w ith total member take-
out of cash performance premium of around EUR500 million over 2019-2022;
– Capex at about 4.5% of revenue;
– Disposal of non-core assets for about EUR150 million over 2019-2020 (Fitch’s assumption); and
– M&A spending not exceeding EUR300 million in total over 2020-2021.
Corporates
Food, Beverage & Tobacco / Netherlands
Royal FrieslandCampina NV
24 September 2019 7
Financial Data
Historical Forecast
(EURm) Dec 2016 Dec 2017 Dec 2018 Dec 2019F Dec 2020F Dec 2021F
Summary Income Statement
Gross Revenue 11,001 12,110 11,553 11,309 11,391 11,597
Revenue Growth (%) -1.9 10.1 -4.6 -2.0 1.0 2.0
Operating EBITDA (Before Income from Associates) 1,209 930 754 852 893 928
Operating EBITDA Margin (%) 11.0 7.7 6.5 7.5 7.8 8.0
Operating EBITDAR 1,273 996 814 912 953 988
Operating EBITDAR Margin (%) 11.6 8.2 7.1 8.1 8.4 8.5
Operating EBIT 902 562 392 490 529 559
Operating EBIT Margin (%) 8.2 4.6 3.4 4.3 4.6 4.8
Gross Interest Expense -39 -45 -34 -43 -38 -37
Pretax Income (Including Associate Income/Loss) 542 407 357 374 395 410
Summary Balance Sheet
Readily Available Cash and Equivalents 321 194 240 200 164 190
Total Debt with Equity Credit 1,585 1,635 1,651 1,635 1,583 1,749
Total Adjusted Debt with Equity Credit 2,097 2,163 2,131 2,115 2,063 2,229
Net Debt 1,264 1,441 1,411 1,435 1,418 1,560
Summary Cash Flow Statement
Operating EBITDA 1,209 930 754 852 893 928
Cash Interest Paid -40 -49 -40 -43 -38 -37
Cash Tax -140 -162 -120 -129 -136 -141
Dividends Received Less Dividends Paid to Minorities
(Inflow/(Out)flow)
-57 -81 -40 -45 -45 -45
Other Items Before FFO -25 16 7 -42 -42 -42
Funds Flow from Operations 921 621 523 603 642 673
FFO Margin (%) 8.4 5.1 4.5 5.3 5.6 5.8
Change in Working Capital 31 -158 131 -68 -9 -22
Cash Flow from Operations (Fitch Defined) 952 463 654 535 633 650
Total Non-Operating/Non-Recurring Cash Flow 0 0 0
Capital Expenditure -567 -530 -485
Capital Intensity (Capex/Revenue) (%) 5.2 4.4 4.2
Common Dividends -215 -185 -140
Free Cash Flow 170 -252 29
Net Acquisitions and Divestitures -367 89 -24
Other Investing and Financing Cash Flow Items 26 -41 18 0 0 0
Net Debt Proceeds -193 43 8 -16 -53 167
Net Equity Proceeds 0 0 0 0 0 0
Total Change in Cash -364 -161 31 -40 -35 25
Calculations for Forecast Publication
Capex, Dividends, Acquisitions and Other Items Before FCF -1,149 -626 -649 -560 -616 -791
Free Cash Flow After Acquisitions and Divestitures -197 -163 5 -24 17 -141
Free Cash Flow Margin (After Net Acquisitions) (%) -1.8 -1.4 0.0 -0.2 0.2 -1.2
Cov erage Ratios
FFO Interest Coverage (x) 11.9 7.6 6.9 7.6 8.4 8.9
Corporates
Food, Beverage & Tobacco / Netherlands
Royal FrieslandCampina NV
24 September 2019 8
FFO Fixed Charge Coverage (x) 7.2 4.8 4.5 5.0 5.4 5.6
Operating EBITDAR/Interest Paid + Rents (x) 11.7 8.0 7.7 8.4 9.3 9.7
Operating EBITDA/Interest Paid (x) 28.8 17.3 17.9 18.9 22.2 23.9
Lev erage Ratios
Total Adjusted Debt/Operating EBITDAR (x) 1.7 2.4 2.8 2.4 2.3 2.4
Total Adjusted Net Debt/Operating EBITDAR (x) 1.5 2.2 2.4 2.2 2.1 2.2
Total Debt with Equity Credit/Operating EBITDA (x) 1.4 1.9 2.3 2.0 1.9 2.0
FFO Adjusted Leverage (x) 2.0 2.8 3.2 2.9 2.7 2.8
FFO Adjusted Net Leverage (x) 1.7 2.6 2.9 2.6 2.4 2.5
Source: Fitch Ratings, Fitch Solutions
How to Interpret the Forecast Presented
The forecast presented is based on Fitch Ratings’ internally produced, conservative rating case forecast. It does not represent the forecast of the rated issuer. The forecast set out above is only one component used by Fitch Ratings to assign a rating or determine a rating outlook, and the information in the forecast
reflects material but not exhaustive elements of Fitch Ratings’ rating assumptions for the issuer’s financial performance. As such, it cannot be used to establish a rating, and it should not be relied on for that purpose. Fitch Ratings’ forecasts are constructed using a proprietary inter nal forecasting tool, which employs Fitch Ratings’ own assumptions on operating and financial performance that may not reflect the assumptions that you would make. Fitch Ratings’ own
definitions of financial terms such as EBITDA, debt or free cash flow may differ from your own such definitions. Fitch Ratings may be granted access, from time to time, to confidential information on certain elements of the issuer’s forward planning. Certain elements of such informati on may be omitted from this forecast,
even where they are included in Fitch Ratings’ own internal deliberations, where Fitch Ratings, at its sole discretion, considers the data may be potentia lly sensitive in a commercial, legal or regulatory context. The forecast (as with the entirety of this report) is produced strict ly subject to the disclaimers set out at the end of this report. Fitch Ratings may update the forecast in future reports but assumes no responsibility to do so. Origi nal financial statement data for
historical periods is processed by Fitch Solutions on behalf of Fitch Ratings. Key financial adjustments and all financial forecasts credited to Fitch Ratings are generated by rating agency staff.
Corporates
Food, Beverage & Tobacco / Netherlands
Royal FrieslandCampina NV
24 September 2019 9
Ratings Navigator
Corporates Ratings NavigatorPackaged Food
aaa AAA Negative
aa+ AA+ Negative
aa AA Negative
aa- AA- Negative
a+ A+ Negative
a A Negative
a- A- Negative
bbb+ BBB+ Negative
bbb BBB Negative
bbb- BBB- Negative
bb+ BB+ Negative
bb BB Negative
bb- BB- Negative
b+ B+ Negative
b B Negative
b- B- Negative
ccc+ CCC+ Negative
ccc CCC Negative
ccc- CCC- Negative
cc CC Negative
c C Negative
d or rd D or RD Negative
ESG Relevance:Royal FrieslandCampina NV
Factor
LevelsSector Risk Profile Operating Environment
Financial FlexibilityFinancial StructureProfitabilityDiversificationBusiness ProfileGrowth PotentialOperational Scale
Business Profile Financial Profile
Issuer Default RatingManagement and
Corporate Governance
Corporates
Food, Beverage & Tobacco / Netherlands
Royal FrieslandCampina NV
24 September 2019 10
Corporates Ratings NavigatorPackaged Food
Operating Environment Management and Corporate Governance
a+ bbb a bbb
a aa a- a
aa bbb+ a
b- bbb bbb
ccc+ bbb-
Operational Scale Growth Potential
a bbb a- bbb
a- a bbb+ bbb
bbb+ bbb bbb
bbb bbb-
bbb- bb+
Business Profile Diversification
bbb+ bbb a- bbb
bbb bbb bbb+ bbb
bbb- bbb bbb
bb+ bbb-
bb bb+
Profitability Financial Structure
bb b aa- a
bb- b a+ a
b+ b a a
b bb a- a
b- bbb+
Financial Flexibility Credit-Relevant ESG Derivation
For further details on Credit-Relevant ESG scoring, see page 3.
3.0x
2.5x
2.5x
2.0x
Moderate geographical diversification.
Good breadth of price points providing sufficient flexibility to manage portfolio favorably through
different points in the economic cycle.
1Showing top 6 issues
How to Read This Page: The left column shows the three-notch band assessment for the overall Factor, illustrated by a bar. The right
column breaks down the Factor into Sub-Factors, with a description appropriate for each Sub-Factor and its corresponding category.
Safe, healthy and nutritious products; product labeling and marketing
Emissions from operations and distribution
Water used in manufacturing process
Impact of product waste and packaging; supply chain management - agricultural materials
Effect of climate change and extreme weather on crop availability and pricing
Impact of labor negotiations and employee (dis)satisfaction
8.0x
Volatility of profit higher than industry average.
EBITDAR >$1.5 billion
Market leader in many categories, with proven ability to maintain or grow share.
Group Structure
Financial Transparency
Innovation
Organic growth tends to be average.
Innovation pipeline of new products allows stable market share and offsets declines in other parts of
the porfolio.
Strategy may include opportunistic elements but soundly implemented.
Experienced board exercising effective check and balances. Ownership can be concentrated among
several shareholders.
Group structure shows some complexity but mitigated by transparent reporting.
Good quality reporting without significant failing. Consistent with the average of listed companies in
major exchanges.
Organic Growth
key
driver
Price Points
issues
issues
4
3
not a
rating
driver
5
2issues
issues
0
1
10
1
2
potential
driver
Lease Adjusted FFO Net Leverage
Lease Adjusted Net Debt/EBITDAR
Royal FrieslandCampina NV has 1 ESG rating driver and 10 ESG potential rating driversFinancial Discipline
bbb-
issues
driverbbb+
bbb
a
Systemic governance (eg rule of law, corruption; government effectiveness) of the issuer’s
country of incorporation consistent with 'aa'.
Volatility of Profitability
Strong brand portfolio with good awareness.
Lead pricing in a few categories, follow pricing actions in others.
0.01
8%
5%
FCF Margin
EBITDA Margin
Distribution ChannelGood presence and positioning across relevant distribution channels, including physical
retail and online formats
Overall ESG
Size
Market Share
Price Leadership
Royal FrieslandCampina NV
Average combination of countries where economic value is created and where assets are
located.
Very strong combination of issuer specific funding characteristics and of the strength of the
relevant local financial market.Governance Structure
Management Strategy
Systemic Governance
Geographic
Moderate portfolio diversity.Products
Liquidity bbb
a Clear commitment to maintain a conservative policy with only modest deviations allowed.
FX Exposure bb
One year liquidity ratio above 1.25x. Well-spread maturity schedule of debt but funding may
be less diversified.
FX exposure on profitability and/or debt/cash flow match. Some hedging in place but only
partly effective.
a-
FFO Fixed Charge Cover bbb 5x
EBITDAR/(Gross Interest Expense +
Rent)a
Lease Adjusted FFO Gross Leverage
Lease Adjusted Gross Debt/EBITDAR
FFO Margin
Brand Strength
Financial Access
Economic Environment
Corporates
Food, Beverage & Tobacco / Netherlands
Royal FrieslandCampina NV
24 September 2019 11
Corporates Ratings NavigatorPackaged Food
Credit-Relevant ESG Derivation
Environmental (E)
E Score
Social (S)
S Score
Governance (G)
G Score
1
Royal FrieslandCampina NV
3
2
Royal FrieslandCampina NV has exposure to waste & impact management risk and supply chain management risk but this has very low impact on the rating.
Royal FrieslandCampina NV has exposure to extreme weather events but this has very low impact on the rating.
Royal FrieslandCampina NV has exposure to customer accountability risk which, in combination with other factors, impacts the rating.
Royal FrieslandCampina NV has 1 ESG rating driver and 10 ESG potential rating drivers
Royal FrieslandCampina NV has exposure to labor relations & practices risk but this has very low impact on the rating.
3
3
3
E ScaleReferenceSector-Specific Issues
Profitability; Financial Structure; Financial Flexibility 4
3
5
2
Royal FrieslandCampina NV has exposure to water management risk but this has very low impact on the rating.
Overall ESG Scale
4
Labor Relations & Practices 3
Energy Management
Business Profile; Growth Potential; Operational Scale
Diversification; Business Profile; Profitability; Financial
Structure; Financial Flexibility
General Issues
Waste & Hazardous Materials Management;
Ecological Impacts
Exposure to Environmental Impacts
Customer Welfare - Fair Messaging, Privacy &
Data Security4
GHG Emissions & Air Quality
Water & Wastewater Management
Royal FrieslandCampina NV has exposure to emissions regulatory risk but this has very low impact on the rating.
S Scale
General Issues
Emissions from operations and distribution
Energy and fuel use in manufacturing and distribution
Showing top 6 issues
Profitability
Diversification; Profitability; Financial Structure;
Financial Flexibility
2
3
1
5
4
n.a.
Financial Transparency 3 2 Irrelevant to the entity rating but relevant to the sector.
4
n.a.
Operational Scale; Business Profile; Profitability;
Financial Structure; Financial Flexibility
Human Rights, Community Relations, Access
& Affordability1
Employee Wellbeing 1
Exposure to Social Impacts
Group Structure 3 3
Management and Corporate Governance
Management and Corporate Governance
Board independence and effectiveness; ownership concentration
Complexity, transparency and related-party transactions
3
CREDIT-RELEVANT ESG SCALE
How to Read This Page
ESG scores range from 1 to 5 based on a 15-level color gradation. Red (5) is most
relevant and green (1) is least relevant.
The Environmental (E), Social (S) and Governance (G) tables break out the
individual components of the scale. The left-hand box shows the aggregate E, S, or
G score. General Issues are relevant across all markets with Sector-Specific
Issues unique to a particular industry group. Scores are assigned to each sector-
specific issue. These scores signify the credit-relevance of the sector-specific
issues to the issuing entity's overall credit rating. The Reference box highlights the
factor(s) within which the corresponding ESG issues are captured in Fitch's credit
analysis.
The Credit-Relevant ESG Derivation table shows the overall ESG score. This
score signifies the credit relevance of combined E, S and G issues to the entity's
credit rating. The three columns to the left of the overall ESG score summarize the
issuing entity's sub-component ESG scores. The box on the far left identifies the
[number of] general ESG issues that are drivers or potential drivers of the issuing
entity's credit rating (corresponding with scores of 3, 4 or 5) and provides a brief
explanation for the score.
Classification of ESG issues has been developed from Fitch's sector and sub-
sector ratings criteria and the General Issues and the Sector-Specific Issues have
been informed with SASB's Materiality Map.
2
1
General Issues G Scale
Management Strategy 3 5Strategy development and implementation
ReferenceSector-Specific Issues
1
Governance Structure 3 4
3
2
How relevant are E, S and G issues to the overall credit rating?
5
Management and Corporate Governance
Management and Corporate Governance
3
1
issues
issues
issues
issues
issues
key driver
driver
potential driver
not a rating driver
0
1
10
1
2
Highly relevant, a key rating driver that has a significant impact on the rating on an
individual basis. Equivalent to "higher" relative importance within Navigator.
Relevant to rating, not a key rating driver but has an impact on the rating in
combination with other factors. Equivalent to "moderate" relative importance within
Navigator.
Minimally relevant to rating, either very low impact or actively managed in a way
that results in no impact on the entity rating. Equivalent to "lower" relative
importance within Navigator.
Irrelevant to the entity rating and irrelevant to the sector.
5
Safe, healthy and nutritious products; product labeling and marketing
Shift in consumer preferences
Sector-Specific Issues
Effect of climate change and extreme weather on crop availability and
pricing
Reference
Impact of labor negotiations and employee (dis)satisfaction
n.a.
Quality and timing of financial disclosure
n.a.
Diversification; Business Profile; Profitability; Financial
Structure; Financial Flexibility
Operational Scale; Business Profile; Profitability;
Financial Structure; Financial Flexibility
Water used in manufacturing process
Impact of product waste and packaging; supply chain management -
agricultural materials
Corporates
Food, Beverage & Tobacco / Netherlands
Royal FrieslandCampina NV
24 September 2019 12
Simplified Group Structure Diagram
Source: Fitch Ratings, Fitch Solutions, RFC, As of 31 December 2018
Corporates
Food, Beverage & Tobacco / Netherlands
Royal FrieslandCampina NV
24 September 2019 13
Peer Financial Summary
Company IDR
Financial Statement Date
Rev enue (EURm)
Operating EBITDAR
(EURm)
Operating EBITDAR
Margin (%)
Free Cash Flow Margin
(%)
FFO Adjusted Net Lev erage
(x)
Royal FrieslandCampina NV BBB+
2018 11,553 814 7.1 0.3 2.9
2017 12,110 996 8.2 -2.1 2.6
2016 11,001 1,273 11.6 1.6 1.7
Nestle SA AA-
2018 79,470 15,894 20.0 2.8 2.2
2017 80,790 15,899 19.7 1.5 1.6
2016 82,378 16,287 19.8 3.9 1.4
Fonterra Co-operative Group Limited
A
2018 12,130 889 7.3 -1.8 4.8
2017 12,560 1,102 8.8 -1.5 4.2
2016 10,409 1,231 11.8 7.0 4.3
WH Group Limited BBB+
2018 19,158 1,937 10.1 -1.5 1.9
2017 19,799 2,186 11.0 1.5 1.5
2016 19,471 2,142 11.0 3.3 1.3
Ingredion Incorporated BBB
2018 4,950 920 18.6 2.9 2.4
2017 5,160 1,016 19.7 5.0 2.0
2016 5,158 995 19.3 6.1 2.5
Flowers Foods, Inc. BBB
2018 3,348 430 12.8 1.2 4.1
2017 3,470 496 14.3 2.1 4.3
2016 3,551 509 14.3 2.9 3.9
General Mills, Inc. BBB
2019 14,733 3,294 22.4 6.2 4.8
2018 13,234 3,013 22.8 6.5 6.2
2017 14,339 3,405 23.7 2.8 4.1
Source: Fitch Ratings, Fitch Solutions
Corporates
Food, Beverage & Tobacco / Netherlands
Royal FrieslandCampina NV
24 September 2019 14
Reconciliation of Key Financial Metrics
(EUR Millions, As reported) 31 Dec 2018
Income Statement Summary
Operating EBITDA 754
+ Recurring Dividends Paid to Non-controlling Interest (63)
+ Recurring Dividends Received from Associates 23
+ Additional Analyst Adjustment for Recurring I/S Minorities and Associates 0
= Operating EBITDA After Associates and Minorities (k) 714
+ Operating Lease Expense Treated as Capitalised (h) 60
= Operating EBITDAR after Associates and Minorities (j ) 774
Debt & Cash Summary
Total Debt with Equity Credit (l) 1,651
+ Lease-Equivalent Debt 480
+ Other Off-Balance-Sheet Debt 0
= Total Adjusted Debt with Equity Credit (a) 2,131
Readily Available Cash [Fitch-Defined] 240
+ Readily Available Marketable Securities [Fitch-Defined] 0
= Readily Av ailable Cash & Equiv alents (o) 240
Total Adjusted Net Debt (b) 1,891
Cash-Flow Summary
Preferred Div idends (Paid) (f) (47)
Interest Received 9
+ Interest (Paid) (d) (40)
= Net Finance Charge (e) (31)
Funds From Operations [FFO] ( c) 523
+ Change in Working Capital [Fitch-Defined] 131
= Cash Flow from Operations [CFO] (n) 654
Capital Expenditures (m) (485)
Multiple applied to Capitalised Leases 8.0
Gross Lev erage Total Adjusted Debt / Op. EBITDAR* [x] (a/j ) 2.8
FFO Adjusted Gross Lev erage [x] (a/(c-e+h-f)) 3.2
Total Adjusted Debt/(FFO - Net Finance Charge + Capitalised Leases - Pref. Div. Paid) Total Debt With Equity Credit / Op. EBITDA* [x] (l/k) 2.3
Net Lev erage Total Adjusted Net Debt / Op. EBITDAR* [x] (b/j ) 2.4
FFO Adjusted Net Lev erage [x] (b/(c-e+h-f)) 2.9
Total Adjusted Net Debt/(FFO - Net Finance Charge + Capitalised Leases - Pref. Div. Paid) Total Net Debt / (CFO - Capex) [x] ((l-o)/(n+m)) 8.3
Cov erage Op. EBITDAR / (Interest Paid + Lease Expense)* [x] (j /-d+h) 7.7
Op. EBITDA / Interest Paid* [x] (k/(-d)) 17.9
FFO Fixed Charge Cov er [x] ((c+e+h-f)/(-d+h-f)) 4.5
(FFO + Net Finance Charge + Capit. Leases - Pref. Div Paid) / (Gross Int. Paid + Capit. Leases - Pref. Div. Paid)
FFO Gross Interest Cov erage [x] ((c+e-f)/(-d-f)) 6.9
(FFO + Net Finance Charge - Pref. Div Paid) / (Gross Int. Paid - Pref. Div. Paid) * EBITDA/R after Dividends to Associates and Minorities Source: Fitch Ratings, Fitch Solutions, RFC
Corporates
Food, Beverage & Tobacco / Netherlands
Royal FrieslandCampina NV
24 September 2019 15
Fitch Adjustment Reconciliation
(EUR Millions, As reported)
Reported Values
31 Dec 18
Sum of Fitch
Adjustments
Cash Adjus
tment
Preferred
Div idend, Associates
and Minorities Cash
Adjustments
Lease Adjust
ment
Other Adjust
ment
Adjusted
Value Income Statement Summary
Revenue 11,553 0 11,553 Operating EBITDAR 693 121
60 61 814
Operating EBITDAR after Associates and Minorities 693 81 (40) 60 61 774
Operating Lease Expense 0 60
60
60 Operating EBITDA 693 61 61 754
Operating EBITDA after Associates and Minorities 693 21
(40)
61 714
Operating EBIT 331 61 61 392
Debt & Cash Summary
Total Debt With Equity Credit 1,651 0 1,651 Total Adjusted Debt With Equity
Credit 1,651 480
480
2,131 Lease-Equivalent Debt 0 480 480 480
Other Off-Balance Sheet Debt 0 0
0 Readily Available Cash &
Equivalents 353 (113) (113) 240 Not Readily Available Cash &
Equivalents 3 113 113
116
Cash-Flow Summary
Preferred Dividends (Paid) 0 (47)
(47)
(47) Interest Received 9 0 9
Interest (Paid) (40) 0
(40) Funds From Operations [FFO] 562 (39) (87) 48 523
Change in Working Capital [Fitch-Defined] 34 97
97 131
Cash Flow from Operations [CFO] 596 58 (87) 145 654
Non-Operating/Non-Recurring Cash Flow 0 0
0
Capital (Expenditures) (485) 0 (485) Common Dividends (Paid) 0 (140)
(140) (140)
Free Cash Flow [FCF] 111 (82) (87) 5 29
Gross Lev erage
Total Adjusted Debt / Op. EBITDAR* [x] 2.4 2.8
FFO Adjusted Leverage [x] 2.8
3.2 Total Debt With Equity Credit /
Op. EBITDA* [x] 2.4 2.3
Net Lev erage
Total Adjusted Net Debt / Op. EBITDAR* [x] 1.9 2.4
FFO Adjusted Net Leverage [x] 2.2
2.9 Total Net Debt / (CFO - Capex)
[x] 11.7 8.3
Cov erage
Op. EBITDAR / (Interest Paid + Lease Expense)* [x] 17.3 7.7
Op. EBITDA / Interest Paid* [x] 17.3
17.9 FFO Fixed Charge Coverage [x] 14.8 4.5
FFO Interest Coverage [x] 14.8
6.9 *EBITDA/R after Dividends to Associates and Minorities Source: Fitch Ratings, Fitch Solutions, RFC
Corporates
Food, Beverage & Tobacco / Netherlands
Royal FrieslandCampina NV
24 September 2019 16
Related Research & Criteria
Short-Term Ratings Criteria (May 2019)
Corporate Rating Criteria (February 2019)
Fitch Ratings 2019 Outlook: U.S. and EMEA Consumer, Food, Beverage & Tobacco (Mild Erosion Expected for Global Consumer
Spending) (November 2018)
Packaged Food: Ratings Navigator Companion (May 2018)
Sector Navigators (March 2018)
Corporates Notching and Recovery Ratings Criteria (March 2018)
Analysts
Giulio Lombardi
+39 02 879087 214
giulio.lombardi@fitchratings.com
Anna Zhdanov a, CFA
+7 495 956 2403
anna.zhdanova@fitchratings.com
Corporates
Food, Beverage & Tobacco / Netherlands
Royal FrieslandCampina NV
24 September 2019 17
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