Food
Moody’s Investors Services says that Lifestyle International Holdings Limited’s 2015 results have no impact on its Baa3 issuer rating.
The rating outlook remains stable.
“Despite the weak retail markets in Hong Kong and China, Lifestyle maintained stable revenue and operating profits in 2015. Combined with its flat debt leverage compared to a year ago, this resulted in a credit profile appropriate for its Baa3 ratings,” says Lina Choi, a Moody’s Vice President and Senior Credit Officer.
“While the negative sales growth trend in the first two months of 2016 point to increased operating challenges, we expect Lifestyle will maintain credit metrics consistent with its Baa3 ratings in the next 12-18 months,” adds Choi, who is also the Lead Analyst for Lifestyle.
Lifestyle recorded 1.6% year-on-year gross sales proceeds growth to HKD13.8 billion in 2015 from HKD13.6 billion in 2014. Driven by 2.3% revenue growth at SOGO Causeway Bay and SOGO Tsim Sha Tsui, Hong Kong and a strong performance in Shanghai Jiuguang, the group’s total revenue grew by 3.4% to HKD6.2 billion from 2014 levels.
Gross sales proceeds declined by low-teen percentage points in the first two months of 2016 from the same period last year, pointing to increasing operating challenges. Lifestyle plans to lengthen promotion periods over the course of the year to avoid repeating the magnitude of revenue declines seen in January-February 2016.
Meanwhile, Lifestyle’s adjusted EBITDA was around HKD3.1 billion in 2015, flat when compared with 2014 levels. Moody’s estimates the company’s profitability, as measured by adjusted EBITDA/gross sales proceeds, was 22%-23% in 2015, also largely stable from the above 20% reported since 2010.
Moody’s expects the company’s adjusted EBITDA/gross sales proceeds ratio will remain above 20%, supported by the company’s established brand name and track record of effective cost control in down cycles.
Although Lifestyle’s adjusted debt increased by around HKD2 billion to HKD14.3 billion at end-2015, this level remains within Moody’s expectation. Accordingly, 2015 adjusted debt/EBITDA for Lifestyle increased to around 4.8x in 2015, a level still appropriate for its Baa3 ratings.
Moody’s expects the company’s leverage level to stay within 4.5x-5.0x in the next 12-18 months. This is based on the expectation that the company will pay down a HKD3.2 billion loan by mid-2017.
Lifestyle’s liquidity remains solid. The company held HKD8.6 billion in cash on hand at end-2015, which is more than sufficient to cover its HKD3.2 billion debt due in the next 12 months.
The principal methodology used in this rating was Retail Industry published in October 2015. Please see the Ratings Methodologies page on www.moodys.com for a copy of these methodologies.
Listed on the Hong Kong Stock Exchange in 2004, Lifestyle International Holdings Limited is a Hong Kong-based retail operator that focuses on mid- to upper-end department stores, through its two retailer brand names, SOGO and Jiuguang. The company operated two SOGO stores in Hong Kong and three Jiuguang stores in China at end-2015.
