Research Update: Upfield (Sigma Holdco BV) Outlook Now Negative On Expected Weaker Cash Flow Due To Separation-Related Costs

Higher separation costs in the €150 million-€200 million range will knock back Upfield's free operating cash flow (FOCF) in 2020. We anticipate Upfield will sustain S&P Global Ratings-adjusted debt to EBITDA materially above 5.0x, almost at 8.0x at end-2020, then in the 7.0x-7.5x range from 2021. Upfield's underlying growth prospects remain almost intact, despite COVID-19 fallout, thanks to exposure to the resilient retailer channel, growth momentum in emerging markets, and increasing diversification of its product portfolio. We are therefore revising the outlook on Sigma Holdco BV, Upfield's parent, to negative from stable, and affirming the ratings at 'B+'. The negative outlook points to the risk that Upfield's FOCF could shrink further and its adjusted debt to EBITDA could remain above

...- Higher separation costs in the 150 million-200 million range will knock back Upfield's free operating cash flow (FOCF) in 2020. - We anticipate Upfield will sustain S&P Global Ratings-adjusted debt to EBITDA materially above 5.0x, almost at 8.0x at end-2020, then in the 7.0x-7.5x range from 2021. - Upfield's underlying growth prospects remain almost intact, despite COVID-19 fallout, thanks to exposure to the resilient retailer channel, growth momentum in emerging markets, and increasing diversification of its product portfolio. - We are therefore revising the outlook on Sigma Holdco BV, Upfield's parent, to negative from stable, and affirming the ratings at 'B+'. - The negative outlook points to the risk that Upfield's FOCF could shrink further and its adjusted debt to EBITDA could remain above 7.5x for a prolonged period in the event of additional costs linked to the separation, a delay to reach value creation savings, or working capital mismanagement....

Research Update