Peer Holding III B.V.

The stable outlook reflects our opinion that Action will continue to implement its expansion strategy, resulting in consistent sales and profit growth. At the same time, we expect this strategy to somewhat constrain operating margins, and together with the higher interest costs post-transaction, constrain Action's EBITDAR coverage to 2.3x-2.5x over the next 12 months. We expect Action to continue generating material reported free operating cash flow (FOCF) from 2020 following a year of elevated investments in 2019. We believe Action can reduce its leverage (S&P Global Ratings-adjusted) to just below 5.0x by year-end 2020 from about 5.5x at the end of 2019, and generate a reported FOCF of €100 million-€160 million a year (after all lease payments). Still, in line

...S&P Global Ratings expects Action to continue to generate healthy cash flows and show deleveraging potential given substantial expected earnings growth. Although we believe it to be somewhat more moderate compared with last year's, we expect healthy topline growth of about 10% in 2020 to support earnings growth mainly due to new store openings. This helps the group to generate a strong 100 million-160 million in reported free operating cash flow per year and enable potential gross debt deleveraging of 0.5x per year over the next years. This follows about 5.5x expected adjusted debt to EBITDA for 2019 pro forma the proposed recapitalization. In light of brisk pace of expansion, related investment requirements can restrict cash generation and bear execution risk. Action has been adding 200-250 stores per year over the past three years. To service these new stores, it has invested in distribution centers in different geographies, predominately in 2019. While the execution of its expansion...

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