S&P downgrades WBD
Danone, Russian dairy and juice producer Wimm-Bill-Dann has had its
Standard & Poor's rating downgraded from stable to negative.
S&P said it had made the move because of the company's
weaker-than-expected financial performance for the first nine
months of the year.
However S&P did reaffirm that it had maintained the WBD 'B+' rating for its corporate credit rating as well as its 'ruA+' Russian national scale ratings, on WBD.
"The ratings on WBD are constrained by the company's aggressive growth strategy, which entails substantial investment needs for the extension and renovation of its plant facilities, and enhancement of its distribution network," Standard & Poor's credit analyst Tatiana Kordyukova told Reuters. "In addition, WBD faces a challenging operating environment and has incurred various cost increases and higher working capital requirements. This has resulted in weak operating cash flows and declining debt protection measures."
WBD has grown rapidly in recent years, diversifying from its core dairy processing focus into fruit juice and bottled water. The company has enjoyed tremendous expansion and has managed to ascertain leading positions in each of these segments, however rapid expansion has led to increasing debt and in 2003 its market share has declined slightly, adding to its problems. Debts are currently running in excess of $300 million.
Last month the company announced that discussions with Danone had come to an amicable conclusion. The decision was undoubtedly a set back for the company's plans for future expansion, although at the time WBD stressed that it did not consider the move would affect its immediate future.
The company is still stressing plans for further growth, which it says will entail further debt. S&P said that coupled with declining profitability and negative cash flow, this could lead to a further deterioration of its credit rating in the future.
"WBD's financial profile, which is currently below Standard & Poor's expectations, could continue to deteriorate as a result of declining earnings and still-significant cash requirements for working capital, capital expenditure, and bolt-on acquisitions," Kordyukova told Reuters. "Furthermore, although the company's debt measures are at present in line with the ratings, they have shown a gradual deterioration over the past year, and this trend is expected to continue. In addition, the company's bond issues contain a debt incurrence test that limits total debt to EBITDA to 4.0x plus $100 million. At Sept. 30, 2003, this ratio reached 3.8x and is expected to grow in the near term. Although breach of this financial covenant itself does not trigger a default, it imposes a restriction on new borrowing that could limit the company's financial flexibility."
