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S&P: Nestlé has sufficient headroom to absorb share buyback program

S&P Global Ratings said Oct. 17 that it believes Nestlé SA has enough ratings headroom to absorb the share buyback program it announced alongside its nine-month sales results.

Nestlé, which has an issuer credit rating of AA-, said it aims to distribute up to CHF20 billion to shareholders over the next three years through a repurchase program that will begin in January 2020.

The company will fund half of the program with CHF10.2 billion of cash proceeds from the sale of its Nestlé Skin Health unit to a consortium led by Swedish private equity firm EQT Partners AB and Luxinva, a wholly owned subsidiary of the Abu Dhabi Investment Authority.

Ratings maintained the Swiss food giant's adjusted debt leverage forecast at 1.8x to 2.0x in 2020 and 2021.

"We base this on our assumption of a stable dividend policy and annual acquisitions of CHF2 billion to CHF3 billion," the agency said.

It also expects Nestlé's adjusted EBITDA margin to improve by 21% to 22% in 2020 to 2021, increasing its adjusted EBITDA base to between CHF20 billion and CHF21 billion as well as its free operating cash flow to CHF11 billion to CHF12 billion annually.