Moody’s Changes Outlook on FUJIFILM Holdings to Stable; Affirms A1 Rating
Tokyo, July 04, 2019 — Moody’s Japan K.K. has changed to stable from negative the outlook on FUJIFILM Holdings Corporation, and has affirmed the company’s A1 issuer rating.
RATINGS RATIONALE
“The stable outlook reflects FUJIFILM Holdings’ credit profile stabilizing as margins recover from the restructuring of its document business and successful diversification into healthcare,” says Takashi Akimoto, a Moody’s Assistant Vice President and Analyst.
FUJIFILM Holdings’ reported operating margin improved to 8.6% in the fiscal year ended March 2019 (fiscal 2018) from 5.1% in fiscal 2017, when the company incurred one-time restructuring losses. The company forecasts its margin will further strengthen to 9.7% in fiscal 2019.
The restructuring of its document business — under operating subsidiary Fuji Xerox Co., Ltd. — has cut costs and improved its profitability. As part of the restructuring, the company rationalized its copier production facilities and sales network globally and downsized its low-end printer business. Fuji Xerox’s geographic footprint, including its presence in growing markets in Asia Pacific, also helps mitigate ongoing pressure from the secular decline in the office document market.
Moody’s expects FUJIFILM Holdings’ growing healthcare business will offset the impact from the decline in the document business. The company aims to expand the healthcare business through both organic growth and acquisitions, while improving its profitability through cost discipline. Accordingly, Moody’s forecasts the healthcare segment’s contribution to total operating profit to rise to around 20% in the next few years from 16% in fiscal 2018 and 7% in fiscal 2016.
In terms of environmental, social and government factors, this rating action takes into consideration FUJIFILM Holdings’ reduced governance risk. FUJIFILM Holdings has remediated its internal controls and corporate governance after accounting irregularities were revealed in 2017 at certain Fuji Xerox’s subsidiaries. FUJIFILM Holdings has since increased its oversight over Fuji Xerox’s operations and centralized its control system at its holding company.
FUJIFILM Holdings’ A1 issuer rating is underpinned by the company’s diverse business portfolio, which consists of a wide range of products that enjoy high market shares, growth prospects or both. The company also has an established track record in transforming its businesses amid disruptive changes in the photographic film and digital camera markets. These strengths enable the company to generate stable free cash flow, even as its document business faces a decline.
The stable outlook is based on FUJIFILM Holdings maintaining its positive free cash flow position and the continuation of its current relationship with Xerox Corporation (Ba1 negative) in the Fuji Xerox joint venture.
An upgrade of FUJIFILM Holdings is unlikely in the near term, given the challenges it currently faces in its document business, and because the rating is already at the same level Japan’s sovereign rating (A1 stable). Over the longer term, the rating could be upgraded if the company maintains stronger credit metrics, for example, its operating margin sustained over 10% and debt/EBITDA below 0.5x.
Moody’s could downgrade the rating if FUJIFILM Holdings’ operating margin falls below 8% and debt/EBITDA rises above 1.9x on a sustained basis. Heightened business and financial risks as a result of an adverse change in its relationship with Xerox may also create immediate downward rating pressure.
FUJIFILM Holdings’ rating could also be impacted by a downward change in the rating or outlook of the Government of Japan.
The principal methodology used in this rating was Global Manufacturing Companies (Japanese) published in August 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
FUJIFILM Holdings Corporation, headquartered in Tokyo, is a holding company with two core operating entities, FUJIFILM Corporation and Fuji Xerox Co., Ltd.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.
Takashi Akimoto
Asst Vice President – Analyst
Corporate Finance Group
Moody’s Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100
Mihoko Manabe
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100
Releasing Office:
Moody’s Japan K.K.
Atago Green Hills Mori Tower 20fl
2-5-1 Atago, Minato-ku
Tokyo 105-6220
Japan
JOURNALISTS: 81 3 5408 4110
Client Service: 81 3 5408 4100
via Moodys