PRESS RELEASE: S&P Report Comments On European Leisure Sector

26th Jul 2010 14:19

The following is a press release from Standard & Poor's: LONDON (Standard & Poor's) July 26, 2010--Despite a somewhat muted return to economic growth in Western Europe, rated leisure companies remain predominantly in defensive and deleveraging mode, says a report published by Standard & Poor's Ratings Services, titled "A Return To Growth For European Leisure Operators, But For How Long?" Companies in the sector are striving to contain pressures on operating margins through cost- and capital expenditure-reduction measures and, in some cases, through financial restructuring. "In our view, the aggressive or highly leveraged financial profiles of many leading companies in the sector leaves them relatively exposed to small changes in operating performance," said Standard & Poor's credit analyst Philip Temme. "Refinancing risks are an increasing area of focus for us as companies grapple with near-term maturities and adapt to more constrained leverage paradigms. Refinancing progress, or the lack of it, has been the key driver of many of our recent rating actions on gaming companies, for example." While market data suggest that the European lodging market has rebounded strongly and recovery is now extending from Northern Europe to more economically stressed Southern European markets, we remain cautious about the sustainability of further lodging recovery in view of the widespread fiscal tightening, continuing low consumer confidence, and limited visibility of future bookings. With hotel demand closely correlated to GDP and income growth, and with the relative strength of the euro dampening external tourist flows into the eurozone, prospects for the lodging market in 2010 remain, in our view, rather more delicately balanced. We also believe that U.K. pub companies face another difficult year. Although the year-on-year trend in pub beer sales appears to be improving modestly--the rate of decline eased to 3.5% in the year to March 2010 from 4.2% in the previous year--we anticipate that trading will remain tough for U.K. pubs in 2010. Although the two European tourism market leaders, TUI Travel PLC and Thomas Cook Group PLC (both part of TUI AG [B-/Watch Neg/--]), have largely been able to offset declining demand through active capacity-reduction programs, outside the rated sector many travel operators are experiencing problems. This was evidenced by the recent entry into administration of U.K. tour operator Goldtrail Travel Ltd., unusually during the summer trading period when travel cash flows are normally strongest. While the gaming industry is not exempt from cyclical and operating pressures, recent gaming-related rating actions have been driven more by financial risks than by earnings-related risks. Regulatory and tax risks also remain critical credit factors for gaming operators. U.K. gaming firms continue to await the results of a government consultation on the revised taxation of gaming machines. France legalized certain forms of private sector online gaming for the first time in June, issuing new five-year licenses for poker, on-line sports, and horseracing betting. Gaming operators in Italy have installed new video lottery terminals pursuant to new licenses, which are expected to be a major source of growth in 2010. Looking ahead, we feel that the fiscal clampdown announced across Europe this year is likely to turn consumers into bigger savers than is already apparent since the start of the financial crisis. This may increase consumers' reluctance to spend, potentially affecting the leisure sector more than most other sectors. We foresee a two-track pattern for consumer spending, with demand in 2010 likely to be flat in France, Italy, and Germany, but contract sharply in Spain, Portugal, and the U.K. The report is available to RatingsDirect on the Global Credit Portal subscribers at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 or sending an e-mail to [email protected]. Ratings information can also be found on Standard & Poor's public Web site by using the Ratings search box located in the left column at www.standardandpoors.com. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow (7) 495-783-4011. Primary Credit Analyst: Philip Temme, London (44) 20-7176-3832; [email protected] Secondary Credit Analyst: Christian Wenk, London (44) 20-7176-3511; [email protected] Additional Contact: Industrial Ratings Europe; [email protected] No content (including ratings, credit-related analyses and data, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of S&P. The Content shall not be used for any unlawful or unauthorized purposes. S&P, its affiliates, and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. 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