Home Consumer debt Amer Sports’ debt rose thanks to faster-than-expected deleveraging

Amer Sports’ debt rose thanks to faster-than-expected deleveraging


S&P Global Ratings raised its debt rating on Amer Sports due to expectations that the sporting goods giant will report a “resilient” in 2021 with an estimated turnover of 2.5 billion euros, up 7 to 8% compared to pre-pandemic levels.

The rating agency expects this performance to allow Amer Sports to make progress in reducing its debt. This expects S&P Global Ratings-adjusted debt to EBITDA to decline to nearly 9.0x (including a €1.3 billion intercompany loan) from 12.5x in 2020.

The rating agency added that although Amer Sport’s ongoing investments to further develop its direct-to-consumer distribution channel, primarily in China and the United States, are expected to result in negative free operating cash flow of €80-90m (including lease payments) in 2022, he believes his liquidity profile will adequately fund the expansion.

S&P upgraded its ratings on Amer Sports and Company B’s €1.7 billion senior secured term loan and €315 million revolving credit facility to maturity from “B-” to “B” 2026. The stable outlook reflects S&P’s view that Amer Sports’ gradual EBITDA expansion will support deleveraging at 7x-8x in 2022 despite rising input costs and logistical constraints.

Amer Sports is majority controlled by Anta Sports but still has an outstanding debt. Amer Sports brands include Salomon, Arc’teryx, Peak Performance, Atomic, Suunto and Wilson.

S&P wrote in its analysis:Amer Sports’ resilience in the face of COVID-19 challenges has enabled strong cash management and accelerated deleveraging at less than 10x. We estimate Amer Sports significantly reduced leverage in 2021, achieving S&P Global Ratings Adjusted Debt to EBITDA of nearly 9.0x versus 12.5x in 2020. This is driven by strong increases sales of highly profitable product segments such as footwear and clothing (around 55% of estimated revenue in 2021), as well as strict management of working capital and investments (capex) over 2020-2021. The disposal of non-strategic assets, such as Precor in the fitness segment, also fueled deleveraging, allowing the company to repay the drawn portion of its €315 million revolving line of credit (RCF) at maturity. 2026 and €100 million add-on to term loan B. Our calculation of net debt at the end of 2021 considers cash on the balance sheet of around €500 million. Adjusted debt includes a €1.3 billion intercompany loan which was funded by the proceeds of the €1.3 billion Term Loan A issued by Amer Sports Holding (Cayman) Ltd., outside the group restricted. Amer Sports provides payment of interest due on Term Loan A through regular cash interest payments on the intercompany loan.

For the full year 2021, we expect Amer Sport sales to approach 2.5 billion euros, representing growth of around 15% year-on-year. Our estimates exclude revenue from Suunto (maker of sports watches, dive computers and precision instruments) as this division was declared a discontinued operation in 2021. Amer Sports recently agreed to sell Suunto’s business to Dongguan Liesheng Electronic Technology Co. Ltd., a Chinese technology company focused on smart and sports wearables. We expect Suunto to have had dilutive effects on margins and required relatively high investments to support new product development. We expect the transaction to close in the first half of 2022. The sale is in line with Amer Sports’ commitment to focus on footwear and apparel, direct-to-consumer expansion through store openings ( mainly in China and the United States) and e-commerce, as well as the development of leading brands such as Salomon, Arc’ Teryx, Wilson and Peak Performance. At the same consolidation scope (excluding the fitness segment, since its sale in 2021, and the upcoming sale of Suunto), Amer Sports’ turnover should increase by around 20% in 2021 compared to 2020 and exceed 2019 ( before the pandemic) from 7 to 8 percent. We expect footwear and apparel to have led growth primarily due to strong demand from Chinese consumers (representing around 12% of total sales in 2021). Although mobility restrictions and social distancing measures related to COVID-19 reduced store traffic, new store openings contributed significantly to the company’s revenue growth, as did the increased demand on e-commerce platforms.

We assume that Amer Sports will benefit from positive consumer demand for sportswear and footwear over the next few years. We believe that e-commerce (approximately 28% of global sportswear sales in 2021) will continue to overtake in-store retail. We believe demand will continue to be supported by consumers increasingly participating in outdoor activities and the continued relaxation of dress codes in many developed countries. Geographically, China is likely to be the fastest growing market, growing around 12% over the period 2022-2026; according to Euromonitor, a growing population of runners is driving the growth of the market. We also believe that the 2022 Winter Olympics in China will drive more interest in winter sports in the region, supporting the sales recovery in the winter sports equipment segment. In China, local brands are gaining ground, mainly after the March 2021 controversy over Xinjiang cotton caused a drop in sales of Western brands. In this context, Anta (major shareholder of Amer Sports) has expanded its domestic market share in China to almost 16% in 2021 in retail value, demonstrating a growing and established network in the country, which could support the strategy of expansion of Amer.

We expect Amer to increase profitability in 2022 despite increased market volatility. In 2021, Amer achieved an adjusted EBITDA margin by S&P Global Ratings of 12.0% to 12.5%, compared to 11.8% in 2020. This despite an increase in input and transport costs over the course of the year. year and non-recurring costs of 30 to 35 €. million related mainly to the reorganization of the group. Although inflationary pressure and logistical disruptions will likely persist, at least in the first half of 2022, we believe the business could increase profitability to nearly 13% in 2022, supported by a significant reduction in one-time costs, its ability to increase in price sales, and an improved product mix through faster growth in highly profitable categories such as footwear and apparel. In addition, Amer Sports’ continued direct consumer penetration will support profitability through better control of selling prices in directly operated stores and online sales, as well as new product launches at higher price points. students.

Negative free operating cash flow (FOCF) expected in 2022 limits Amer Sports’ standalone solvency. share of sales in the direct-to-consumer channel thanks to the opening of selected new stores, varying between 40 and 50 openings per year, mainly in China and the United States. exit. At the same time, capital spending will likely peak over the next two to three years to support the acceleration of new store openings and IT investments. We assume that capital expenditure will reach €120-130 million in 2022, a significant increase from the €70-75 million forecast at the end of 2021. That said, we believe that the company has enough cash to support its expansion strategy with around €500 million of balance sheet cash expected at the end of 2021 and full availability under its RCF of €315 million maturing in 2026. A significant portion of existing cash comes from proceeds from the sale of Precor (approximately €367 million in 2021). We have not taken into account in our assumptions the expected proceeds from the announced sale of Suunto since we expect them to be insignificant.

Our “B” rating on Amer Sports incorporates a notch of support from its major shareholder Anta Sports. We consider Amer Sports to be moderately strategic for its main shareholder. Indeed, Amer Sports plays a vital role in Anta’s strategy to promote winter sports in China. We consider the continued operational support of Anta Sports to support the growth of Amer Sports in China, where the shareholder can leverage its established presence in the country and its knowledge of consumers. We note that Amer Sports sales in China have grown over the past three years, representing approximately 12% of total revenue in 2021 compared to 4% in 2019. We also observed limited financial support received from Anta materialized in the agreement to delay approximately €12 million of interest payments on the €1.3 billion intercompany loan in 2020; they were then paid in 2021.

“The stable outlook reflects our view that, despite higher input costs and logistical challenges, Amer Sports will continue to benefit from favorable consumer demand for activewear, particularly apparel and footwear. , and the continued expansion of direct-to-consumer sales, primarily in China and the United States, of its flagship brands.

“We expect the gradual strengthening of the business EBITDA to support deleveraging to 7x-8x in 2022 from 9x in 2021. This despite a negative FOCF of €80-90m (including lease payments) to support expansion projects.”