DBRS Confirms Nestlé S.A. and Nestlé Capital Canada Ltd. at AA and R-1 (middle), Stable

DBRS Limited (DBRS) has today confirmed the Issuer Rating of Nestlé S.A. (Nestlé or the Company) at AA and the Commercial Paper rating of Nestlé Capital Canada Ltd. at R-1 (middle), both with Stable trends. The confirmation of the ratings is based on the Company’s stable financial profile and its sound operating performance in 2015 and H1 2016, despite top-line growth being challenged by deflation because of currency devaluations and generally low commodity costs. In June 2016, Nestlé named Ulf Mark Schneider as the Chief Executive Officer (CEO) of the Company starting from January 1, 2017. Mr. Schneider had been the CEO of Fresenius SE & Co. KGaA, a European health-care company, underscoring Nestlé’s emphasis on health and nutrition. Nestlé’s ratings continue to be supported by its industry-leading portfolio of brands, its large size and its excellent diversification. The ratings also reflect the mature nature of many of the products and markets, exposure to volatile commodity costs and the significant investment necessary for continued growth.

Nestlé’s earnings profile is expected to remain stable over the longer term based on the Company’s strong portfolio of global brands, exceptional geographic diversification and continued focus on innovation and efficiency improvements. DBRS believes Nestlé will continue to be active in managing its portfolio while aiming to grow its presence in health and wellness. Organic growth should continue to be in the mid-single-digit per year range over the medium term, driven by a combination of price increases and volume growth. Selective price increases toward the end of H1 2016 should begin to benefit results in H2 2016 and into 2017. Operating margins should improve moderately over the medium term as the Company undertakes a number of structural cost-saving initiatives as well as its ongoing Nestlé Continuous Excellence program. As such, DBRS expects Nestlé’s EBIT to improve on an organic basis toward the CHF 15.0 billion level in the near to medium term.

Nestlé is expected to maintain a financial profile considered to be acceptable for the current AA rating based on the strength of its free-cash-generating capacity and disciplined financial management. Cash flow from operations should continue to track operating income, while capital expenditures should remain in the 4% to 5% of sales per year range. Cash outlay for dividends should continue to increase moderately over the medium term. As such, DBRS expects Nestlé will continue to generate healthy levels of free cash flow after dividends but before changes in working capital in the CFH 3.0 billion range over the medium term. DBRS expects Nestlé will continue to use free cash flow, cash on hand, and incremental debt to invest in growth and/or increase returns to shareholders. That being said, DBRS expects that Nestlé will continue to be managed to maintain credit metrics considered appropriate for the current AA rating (i.e., lease-adjusted net-debt-to-EBITDAR below 1.5 times).

Notes:
All figures are in Swiss francs unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodologies are Rating Companies in the Consumer Products Industry, DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers and DBRS Criteria: Guarantees and Other Forms of Support, which can be found on our website under Methodologies.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.

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