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Moody's revises EssilorLuxottica outlook to stable from positive

Moody's Investors Service on May 21 affirmed EssilorLuxottica SA's ratings at A2 and revised the prescription lens and frames maker's outlook to stable from positive.

The A2 rating applies to the company's long-term issuer ratings and senior unsecured ratings. Moody's also affirmed the company's long-term/short-term issuer ratings at A2/P-1 and its senior unsecured medium-term note program at (P)A2/(P)P-1.

The rating agency said it changed the outlook to stable to reflect a degree of uncertainty for stakeholders as a result of corporate governance issues at the company that temper the positive pressure on EssilorLuxottica's credit profile.

EssilorLuxottica, which was formed from the €48 billion merger of French lens maker Essilor International and Italian eyewear company Luxottica Group in October 2018, last week announced that it resolved the monthslong governance conflict, saying the resolution provided the basis for a "renewed start."

Moody's said further proof of a smoothening of the companies' integration, both on an operational level and at the executive level, could eventually lead to positive rating pressure.

The rating agency said Essilor and Luxottica have complementary businesses that drive the value of their products. As a result of the merger, Luxottica has also gained access to Essilor's network of independent opticians for the sale of their frames and sunglasses, Moody's said.

Moody's expects EssilorLuxottica to generate free cash flow in excess of €1 billion in 2019, which it said would steadily increase thereafter, partly driven by €420 million to €600 million of cost and revenue synergies that the company has set out to achieve.

The combined entity had cash balances of €1.8 billion at the end of December 2018, outweighing current liabilities of €1.1 billion.