S&P downgrades Head

Standard & Poor's said it lowered its long-term corporate credit rating on Head NV to B from B+, reflecting lower-than-expected profitability in the fourth quarter of 2004 and weak prospects for 2005.

At the same time, the senior unsecured rating on bonds issued by Head subsidiary HTM Sport und Freizeitgeraete AG and guaranteed by Head was lowered to B- from B. The outlook is negative.

S&P said the rating actions reflect Head's weaker-than-expected results in fourth-quarter 2004, during which operating income before restructuring costs declined by 35% from the same period of 2003. This large reduction in fourth-quarter profitability has weakened the group's financial profile, with lease-adjusted total debt to EBITDA (before restructuring costs) increasing to 8.0x in 2004 from 6.3x in 2003.

The ratings reflect the competitive nature of the cyclical and seasonal sports equipment industry, the company's reliance on discretionary spend by consumers, its exposure to foreign exchange fluctuations, and very aggressive financial profile. These negative factors are partly offset by Head's leading position in tennis, alpine skiing, and diving equipment, and its good geographical diversification, the agency said.

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