Moody's may downgrade Woolworths

Moody's Investors Service said it placed Woolworths Group plc's Ba1 issuer rating on review for possible downgrade following the company's announcement that the contract of EUK, the group's entertainment and publishing business, to supply music, DVDs and games to Tesco, EUK's largest customer, will terminate on April 29.

For the fiscal year ended Jan. 29, 2005, Woolworths' entertainment wholesale and publishing segment generated over 50% of consolidated operating profit before common costs. Woolworths' current rating positively benefits from the growth in scale in this segment as an additional source of revenue and its increasing contribution to the consolidated group's cash flows, the agency said.

In its review, Moody's will focus on the extent to which the loss of the Tesco contract is expected to negatively impact EUK's growth and profitability prospects, the growth of other contracts that might offset the loss and the underlying performance in Woolworths' retail chain.

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