LVMH AIRS ITS RATINGS RANK
Byline: Jennifer Weil
PARIS — LVMH is doing it by the numbers in an effort to boost transparency.
Standard & Poor’s Friday published LVMH Moet Hennessy Louis Vuitton’s long-term corporate credit rating for the first time, at the French luxury goods firm’s request. And LVMH will report its directors’ compensation at its general meeting on May 15, said a company spokesman.
Patrick Houel, LVMH’s chief financial officer, also said Friday that LVMH has almost completed its plan to divest nonstrategic activities expected this year to reduce debt, referring to the firm’s recent sales of Pommery champagne house and its 45 percent stake in Phillips auction house, among other holdings. In addition, reports continue to swirl of the possible sales of Loewe and Celine.
Houel explained that LVMH had asked S&P to publish a long-term corporate credit rating for the firm to insure maximum transparency.
S&P assigned LVMH a “BBB”-plus, a single notch below an “A” rating, which signifies “strong capacity to meet financial commitments,” with a negative outlook. It also affirmed a short-term corporate credit rating of “A-2.”
Industry sources believe LVMH requested publication of a long-term rating to assure investors after a weak showing in 2001. As reported, net group income tumbled 98.6 percent to a mere $8.7 million on revenues of $10.6 billion, up 5.6 percent, last year. Last week, LVMH reported first-quarter 2002 sales grew 8 percent, to $2.6 billion.
“LVMH’s ratings reflect its number one position by far in the luxury goods industry and its diversified earnings base,” said Hugues De La Presle, director of corporate finance at S&P, in a statement. “These positive factors are offset, however, by a very weak financial profile for the ratings at yearend 2001, although this is expected to recover markedly in 2002.”
S&P warned that if LVMH’s financial profile does not recover to levels more in line with the rating category by the end of this year, its “ratings will come under strain.” It said that, in particular, coverage of lease-adjusted net debt by funds from operations should reach 19 to 20 percent and lease-adjusted earnings before interest, taxes, depreciation and amortization interest coverage should be 5 to 5.5 times.
“Standard & Poor’s also expects the group’s debt measures to show further significant improvement in 2003, as a result of management’s clear focus on reducing debt,” added De La Presle. LVMH stock closed at $51.59, down 0.4 percent, on the Paris bourse Friday. Dollar figures have been converted from the euro at current exchange rates.