S&P to lower Fage’s long-term credit rating

Standard & Poor’s Ratings Services has lowered its long-term corporate credit rating on Fage Dairy Industry to B- from B. The outlook is stable. At the same time, the rating on the company’s senior unsecured notes was lowered to B- from B. «The downgrade reflects that the company’s credit measures are meaningfully outside our ratio guidelines as a result of disappointing trading for the 12 months to September 30, 2007,» said Standard & Poor’s credit analyst Diego Festa. «We expect that difficult market conditions in the Greek dairy market will continue to challenge a sustained recovery in Fage’s earnings in the medium term.» To September 30, 2007, the company had total debt of -191.1 million (compared to -155.3 million a year earlier), adjusted for operating leases, the post-tax unfunded pension deficit, equipment purchase commitments, and accrued interest. Fage is confronted with rising price-led competition in Greece, and increasing concentration in the retail market, which represents about 75 percent of its sales. These factors, together with the adverse impact of the yogurt product recall for quality issues in November 2006, the third since April 2005, are eroding the company’s leading share of the Greek branded-yogurt market, which was 32 percent at September 30, 2007, down from 35 percent the year earlier. Increased competitiveness since the entry in mid-2004 of Friesland Foods (which gained 9.5 percent share in just two years) will translate into a much less benign pricing environment than previously. «Consequently, we do not expect Fage to regain its previous position,» S&P said.«Positively, the company’s new yogurt plant in the US is likely to start operations in April 2008. This will result in operating profits benefiting from reduced costs, such as transportation and milk, and the avoidance of import tariffs.»