DBRS Confirms McCain Foods at A (low), Stable Trend

DBRS has today confirmed the rating of McCain Foods Limited’s (McCain or the Company) Senior Debt Obligations at A (low) and McCain Finance (Canada) Limited’s Commercial Paper rating at R-1 (low). The trends remain Stable.

McCain’s F2009 sales increased +9.0% year-over-year (yoy), almost entirely as a result of pricing increases and mix improvement, while overall volume declined -0.5%. McCain continued to display strong growth in its emerging markets while developed market growth remained soft. Operating margins decreased considerably in F2009 from F2008 as price increases implemented by McCain were amply offset by sharply higher input costs and some one-time expenses in the year. As a result, operating income declined -10% from a very strong year in F2008. Lower operating cash flow combined with a higher-than-usual dividend caused net debt and net debt-to-EBITDA to turn marginally higher at the end of F2009 from the relatively low levels witnessed over the last couple of years. That said, financial metrics remain more than adequate and well placed for the Company’s credit ratings.

Going forward, DBRS expects McCain’s earnings profile to remain strong and stable on the back of its strong market share, geographic diversification and efficient operations. DBRS expects volume to grow at a slightly stronger rate in F2010 as emerging markets continue to expand and developed markets benefit marginally from a stabilizing economy. Overall earnings should rebound to a more normal level in F2010 as further improvement in pricing/mix and more stable input costs help margins recover. In terms of cash flow, DBRS expects capital expenditures and dividends to be at normal levels in F2010. As a result, free cash flow should return well into positive territory in F2010. Therefore, net debt should decrease moderately by end-F2010, barring any major acquisitions made through the course of the year. Moderate improvement in credit metrics should keep McCain well placed within the parameters of the current rating category.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Consumer Products, which can be found on our website under Methodologies.

This is a Corporate rating.