OREANDA-NEWS. December 15, 2015. The sector outlook for EMEA and US alcoholic beverages companies remains stable in 2016 reflecting Fitch Ratings' expectations of continued overall resilience by the major industry players. This is despite continued challenges from changing consumer preferences in the US and Western Europe, weakening of demand in developing markets and potential currency headwinds.

EMEA-based issuers are more exposed to those effects than their US peers, who should continue to gain market share due to their focus on above-premium portfolios with strong brand recognition. The risks for EMEA-based players are mitigated by a gradual recovery of consumer spending in Western Europe, in particular in the out of home channel, as well as good pricing power and ongoing cost rationalisation efforts, which should help protect profits.

The negative rating outlook reflects the portfolio of issuers entering 2016 with tight rating headroom or whose credit profile is likely to suffer from adverse factors in 2016. Rating headroom has remained constrained for several industry issuers in 2015 and more of them will be testing limits as a result of high leverage linked to M&A (Anheuser-Busch InBev, SABMiller, MolsonCoors), currency movements (ABI, Diageo, Pernod, Carlsberg, Brown Forman) increased shareholder distributions (Brown-Forman), or weak performance in some of their key markets (Carlsberg, ABI, Diageo).

Acquisition targets are now rarer in the international beer sector but are starting to include craft brewers. Due to potential divestments, completion of the ABI-SABM merger could in 2016 generate some M&A opportunities for other players. However, Carlsberg has no rating headroom for debt-funded M&A activity.

In spirits, several large M&A transactions in 2014-2015 were driven by the growth ambitions of Asian and Latin American companies. Diageo and Pernod still need to recover rating headroom but could be motivated to resume M&A spending in order to adapt their product portfolios.

The full report '2016 Outlook: EMEA and US Alcoholic Beverages ' is available at www.fitchratings.com. Fitch's outlook reports for other sectors and regions are also available.