Providing some interesting figures on Amer Sports’ latest performance and some interesting projections, Moody’s has changed its outlook for the company from negative to stable. However, it maintained an overall B3 corporate rating on Amer’s debt, feeling that its credit metrics will remain weak over the next 12 to 18 months, despite the cash boost from its recently completed sale of Precor.

Secured by Amer’s own assets, the debt consists of €1.8 billion guaranteed senior term loan due in 2026 and a €315 million guaranteed senior revolving credit due in 2025. Based on Moody’s calculations, Amer’s adjusted Ebit margin fell last year to 2.9 percent from 6.4 percent in 2019, despite savings of €120 million in operating expenses, pushing its adjusted debt/Ebitda ratio up to 10 times from 8.4 times. The agency sees the financial leverage declining only slightly this year and go slowly below 8 times by 2022, when there will be a chance for substantial growth in earnings. Profitability will remain constrained this year as high one-off costs will offset a progressive recovery in consumer spending.

Moody’s expects Amer to post an overall sales increase of around 10 percent in 2021, continuing the positive momentum enjoyed in the second half of last year. Most of the growth will come this year from the U.S. and Chinese markets, as consumer demand in Europe will continue to be affected during the first quarter from retail lockdowns and a ban on ski holidays in most European countries.

In the past year, the coronavirus outbreak caused Amer’s sales and adjusted Ebitda to decline by 15 percent and 23 percent, respectively. During the second half, strong e-commerce expansion and retail growth in China helped the group to record higher consumer demand for sports apparel, footwear and individual ball sports equipment, but this was not enough to offset a decline in the course of the year in winter sports, team ball sports, sports instruments and commercial fitness.

Moody’s is encouraged by Amer’s broad diversification, the additional growth potential from its expansion in the direct-to-consumer channel of the Chinese outdoor apparel market and the strategic guidance and potential financial support from its main shareholder, Anta Sports Products, and its other investors.

Amer’s free cash flow generation increased to around €120 million in 2020 from a deficit of €190 million in 2019, thanks to a steady reduction in working capital, but Moody’s predicts a negative cash flow of between €80 million and €100 million for this year, due to significant capital spending and marketing expenses, combined with a resumption of dividend payments. Amer’s cash flow may only turn breakeven in 2022.

The group’s ambitious expansion plans in China will absorb a major portion of a planned annual capital spending budget of around €160 million. On the other hand, with a €323 million cash balance as of last Dec. 31 and €150 million available under its revolving credit, its liquidities should remain “adequate,” according to Moody’s.