KUALA LUMPUR: Malaysian Rating Corp Bhd has affirmed its ratings on Tesco Stores (Malaysia) Sdn Bhd's (Tesco Malaysia) RM3.5 billion debt notes with a stable outlook.
The debt notes involve its conventional commercial papers/medium term notes (CP/MTN) facility and Islamic commercial papers/medium term notes (ICP/IMTN) facility at MARC-1(cg)/AAA(cg) and MARC-1ID(cg)/AAAID(cg) respectively.
The outlook for the ratings is stable. The ratings reflect the credit strength of the corporate guarantee provided by its UK-based parent company, Tesco plc for the rated facilities.
Below is the statement issued by MARC on Friday, Jan 14.
Tesco plc carries a public information rating of AAA/stable from MARC premised on the retailer's globally diversified and dominant market position in the grocery retailing industry, its healthy cash flow generation ability, and improved financial metrics.
Tesco Malaysia, a joint venture between Tesco plc (70%) and its Malaysian partner, SIME DARBY BHD [] (30%), has rapidly expanded its network to 37 outlets since commencing operations in 2000.
With a combined retail area of 3.1 million sq ft as at August 2011, it'' adheres to an expansion strategy of opening between three and five hypermarkets annually that has enabled it to maintain a leadership position in the Malaysian retail hypermarket segment with a 30% market share in 2009.
Tesco Malaysia has also benefited from the strong Tesco brand awareness among consumers in urban and suburban areas where its outlets are primarily located.
Tesco Malaysia continues to derive considerable business and technical support from its parent, Tesco plc with an emphasis on supply chain management and product sourcing.
For the financial year ended'' February 28, 2010 (FY2010), Tesco Malaysia recorded 7% revenue and 35% profit before tax growth rates to RM3.53 billion and RM75.7 million respectively year-on-year.
The growth was largely attributed to an 8.3% addition in retail space during the year and a significant reduction in finance costs.
Correspondingly, cash flow from operations (CFO) continued to grow for a third consecutive year; however, free cash flow (FCF) remained negative due mainly to its ongoing hypermarket expansion.
As a result, MARC expects FCF to be in deficit, and Tesco Malaysia would be reliant on refinancing'' or advances from Tesco plc in respect of the redemption of its rated issuances.
MARC notes that parent company has extended financial support to Tesco Malaysia by way of loans, although the subsidiary is expected to service its own debt.
In this respect, MARC believes'' that Tesco Malaysia should be able to meet this requirement given the improving CFO interest coverage which stood at 4.33 times in FY2010 (FY2009: 2.30 times).
Tesco plc recorded a revenue of ''29.8 billion in the 26 weeks ending August 28, 2010 (1HFY2011) (1HFY2010: ''27.8 billion), driven by stronger results from the group's Asian operations that had compensated for lower growth in its domestic market.
Revenue growth in 1HFY2011 was also aided by the weaker British pound against Asian currencies, generating some ''535 million of total revenue. Despite difficulties in several markets, including the US, Ireland and Japan, Tesco plc's pre-tax profits rose to ''1.19 billion in 1HFY2011 (1HFY2010: ''1.03 billion).
Its US operations in particular have continued to suffer, registering a loss of ''95 million in 1HFY2011 (1HFY2010: - ''85 million) due to continued delays in expanding new stores that is seen as critical to Tesco plc's strategy to achieve economies of scale. I
n spite of the setback in the US, Tesco plc added 229 new stores worldwide, increasing its total number to 5,008 stores, and store space by 2.8% to 96.7 million sq ft in 1HFY2011.
MARC notes that Tesco plc has also demonstrated its commitment to reduce its net debt levels, with its total net debt declining to ''7.6 billion, while its debt-to-equity ratio has improved to 0.82 times (FY2009: 0.90 times).
The debt notes involve its conventional commercial papers/medium term notes (CP/MTN) facility and Islamic commercial papers/medium term notes (ICP/IMTN) facility at MARC-1(cg)/AAA(cg) and MARC-1ID(cg)/AAAID(cg) respectively.
The outlook for the ratings is stable. The ratings reflect the credit strength of the corporate guarantee provided by its UK-based parent company, Tesco plc for the rated facilities.
Below is the statement issued by MARC on Friday, Jan 14.
Tesco plc carries a public information rating of AAA/stable from MARC premised on the retailer's globally diversified and dominant market position in the grocery retailing industry, its healthy cash flow generation ability, and improved financial metrics.
Tesco Malaysia, a joint venture between Tesco plc (70%) and its Malaysian partner, SIME DARBY BHD [] (30%), has rapidly expanded its network to 37 outlets since commencing operations in 2000.
With a combined retail area of 3.1 million sq ft as at August 2011, it'' adheres to an expansion strategy of opening between three and five hypermarkets annually that has enabled it to maintain a leadership position in the Malaysian retail hypermarket segment with a 30% market share in 2009.
Tesco Malaysia has also benefited from the strong Tesco brand awareness among consumers in urban and suburban areas where its outlets are primarily located.
Tesco Malaysia continues to derive considerable business and technical support from its parent, Tesco plc with an emphasis on supply chain management and product sourcing.
For the financial year ended'' February 28, 2010 (FY2010), Tesco Malaysia recorded 7% revenue and 35% profit before tax growth rates to RM3.53 billion and RM75.7 million respectively year-on-year.
The growth was largely attributed to an 8.3% addition in retail space during the year and a significant reduction in finance costs.
Correspondingly, cash flow from operations (CFO) continued to grow for a third consecutive year; however, free cash flow (FCF) remained negative due mainly to its ongoing hypermarket expansion.
As a result, MARC expects FCF to be in deficit, and Tesco Malaysia would be reliant on refinancing'' or advances from Tesco plc in respect of the redemption of its rated issuances.
MARC notes that parent company has extended financial support to Tesco Malaysia by way of loans, although the subsidiary is expected to service its own debt.
In this respect, MARC believes'' that Tesco Malaysia should be able to meet this requirement given the improving CFO interest coverage which stood at 4.33 times in FY2010 (FY2009: 2.30 times).
Tesco plc recorded a revenue of ''29.8 billion in the 26 weeks ending August 28, 2010 (1HFY2011) (1HFY2010: ''27.8 billion), driven by stronger results from the group's Asian operations that had compensated for lower growth in its domestic market.
Revenue growth in 1HFY2011 was also aided by the weaker British pound against Asian currencies, generating some ''535 million of total revenue. Despite difficulties in several markets, including the US, Ireland and Japan, Tesco plc's pre-tax profits rose to ''1.19 billion in 1HFY2011 (1HFY2010: ''1.03 billion).
Its US operations in particular have continued to suffer, registering a loss of ''95 million in 1HFY2011 (1HFY2010: - ''85 million) due to continued delays in expanding new stores that is seen as critical to Tesco plc's strategy to achieve economies of scale. I
n spite of the setback in the US, Tesco plc added 229 new stores worldwide, increasing its total number to 5,008 stores, and store space by 2.8% to 96.7 million sq ft in 1HFY2011.
MARC notes that Tesco plc has also demonstrated its commitment to reduce its net debt levels, with its total net debt declining to ''7.6 billion, while its debt-to-equity ratio has improved to 0.82 times (FY2009: 0.90 times).
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