Qivalio assigns a BBB long-term rating for L’Occitane International, reaffirms its SR1 short-term rating after news of Sol de Janeiro deal

23/11/2021

Lyon, November 23, 2021 – Credit rating agency Qivalio has assigned a BBB long-term corporate rating as well as a BBB rating for the envisaged NEU MTN program of up to €300m of l’Occitane International. Meanwhile, Qivalio has reaffirmed its SR1 short-term rating for the €500m NEU CP program.

Rating rationale

Qivalio has analysed the credit prole of L’Occitane International as well as the potential impacts expected from the ending of the Chapter 11 procedure in the US for L’Occitane Inc, and the upcoming acquisition of the Sol de Janeiro brand, in order to assign its long-term rating and to review its short-term rating. The outcome is a BBB long-term rating, a BBB long-term rating for the envisaged NEU MTN program, and a short-term rating of SR1, unchanged from a month ago, for the existing NEU CP program.

Credit profile

L’Occitane is an international manufacturer and retailer of body, face, fragrance and home products using natural and organic ingredients. The company mainly sells skincare products through 6 different brands, the primary one being L’Occitane en Provence. The company has been listed on the Hong Kong Stock Exchange since 2010 and is majority-owned by Reinold Geiger, its chairman and former CEO.

At the end of August 2021, L’Occitane Inc, the US subsidiary for retail sales, closed its Chapter 11 procedure which triggered a reconsolidation of l’Occitane Inc as of September 1, 2021. From a credit standpoint, the situation post-Chapter 11 is expected to be favourable for l’Occitane as lease liabilities will be lower whereas EBITDA is expected to be higher, thereby improving the Qivalio-adjusted net leverage ratio. More recently, on November 15, 2021, l’Occitane announced the upcoming acquisition (before year-end) of an 83% stake in the US-based brand Sol de Janeiro for a total equity value of $450m (for 100%). While signicant in value, the acquisition is not expected to have a material impact on credit metrics. The rest of the group remained resilient through the pandemic as L’Occitane reported consolidated revenues down only 6.5% for its FY21 (-5.7% including l’Occitane Inc sales for February and March 2021), and reported pro forma revenues up 17.6% yoy for 1H22 (to end-September 2021). Since our last rating report update in October 2021, the group’s liquidity prole is unchanged and supported by the RCF with a 5 +1 +1 years maturity.

However, our rating remains constrained by the limited size of the company compared to many of its peers, and its dependence upon the success of its main brand L’Occitane en Provence, which still accounts for 78% of consolidated revenues, even though diversication has improved with the acquisition of Elemis in 2019 (c.10% of FY21 sales) and will improve further with the acquisition of Sol de Janeiro.

Liquidity profile

The liquidity prole of the company is unchanged since our last report in October 2021, and remains very good, supported by the RCF with a maturity in 2026 plus an option for two additional years, and limited debt redemption expected over the medium term.

Credit outlook

We have a Stable outlook for the next 12 months, which reGects our view that credit metrics will slightly improve - but not to a signicant degree - as the pandemic fades away and l’Occitane completes its acquisition of Sol de Janeiro.

Our methodologies used for these ratings are available at:

L’Occitane International

Founded in 1997 by Reinold Geiger, after the acquisition of the L’Occitane en Provence brand, L’Occitane Group is an international group which manufactures and retails beauty and well-being products that are rich in natural and organic ingredients. The company mainly sells skincare products, with perfume, haircare and other products completing the mix. L’Occitane Group sells its products through 6 different brands (L’Occitane en Provence, L’Occitane au Brésil, Melvita, Erborian, LimeLife, and Elemis), to address different markets, but all have in common the use of natural/organic ingredients. Due to its history, the majority of the group’s sales are concentrated on the L’Occitane en Provence brand. L’Occitane International is present in 90 countries through a network of some 3,088 stores, of which 1,523 are directly operated by the company; the remaining stores are operated by distributors.

Qivalio

Qivalio is an innovative European rating, research and advisory group serving sustainable nance and sustainable development. The Group provides investors, companies and organizations with solutions to the challenges of nancing as well as environmental and societal transformation. Created in 2017, Qivalio is the result of the merger between Spread Research and EthiFinance, French nancial and extra-nancial rating agencies both founded in 2004. Qivalio provides its services to a wide range of leading international clients under the brands Spread Research (independent credit research), Qivalio Ratings (credit rating agency), Qivalio Analytics (Risk Modelling), and EthiFinance (extra-financial rating and advisory agency).

Qivalio operates as a credit rating agency registered with and regulated by the European Securities and Markets Authority (ESMA) since July 2013, and as an External Credit Assessment Institution (ECAI). Our ratings are recognized by the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA), and can be used for the internal calculation and models of banks and insurance companies. Under the Qivalio Ratings brand (formerly Spread Ratings), Qivalio provides nancial analysis, assigns credit ratings for issuers, and provides credit opinions for nancial operations (particularly for private debt funding operations or for the purpose of accounting/tax documentation). Qivalio is one of the rating agencies authorized by the Banque de France to rate NEU CP and NEU MTN programs.

Contacts

Qivalio
Elie Hériard-Dubreuil / elie.heriard-dubreuil@qivalio.com

L’Occitane International
Samuel Antunes / L’Occitane International - samuel.antunes@loccitane.com

L-Occitane press release November 2021.pdf


Auteurs

Thomas Dilasser

Analyste

thomas.dilasser@qivalio.com