The new consumer products rating methodology supplements Scope’s general corporate rating methodology. The methodology adds value for investors by improving credit differentiation and introducing consumer product industry specifics into the credit risk evaluation of a company’s business risk profile (BRP). The methodology further improves transparency and highlights the relative importance of key rating drivers when analysing consumer product corporates.

Scope invited market participants to comment until September 5, 2020 on the proposed methodology published on August 5, 2020 and did not receive any comments. Changes are limited to minor editorial amendments.

Methodology highlights

Scope’s business risk assessment starts with distinguishing between durable and non-durable products in order to establish correct industry-related risk ratings. Next, the company’s competitive positioning is analysed using four separate risk driver categories: i) market shares; ii) diversification; iii) operating profitability; and iv) brand strengths. All four categories are tailormade to fit the consumer product industry and are generally applied with the same weighting.

The last category, brand strengths, expands Scope’s risk driver categories to reflect the importance of brand strength for consumer goods credit ratings. Scope highlights the significance of brand value, quality and product sustainability as well as spending on marketing, branding and innovation. The rating agency believes it is essential to strengthen brands and products in order to grow or maintain market shares.

In today’s increasingly digital world, Scope believes that successful branded consumer product companies must be able to influence consumer behaviour and engage with customers, whose voices can, in turn, impact branding and demand. The public perception of brand value and the sustainability of brand attributes is changing more rapidly today, reflecting the impact of digital marketing and swifter local communication. This means that successful companies will also need to be at the forefront of ESG compliance.

Scope’s assessment of a consumer product company’s financial risk profile follows the general guidance presented in the agency’s Corporate Ratings Methodology. Scope focuses on the recent and forward-looking data of an issuer’s financial risk profile, including (but not limited to) key parameters like leverage, interest cover, cash flow and liquidity.

This new Consumer Product Rating Methodology will be applied, as a complement to the corporate rating methodology, when rating consumer product corporate entities. The new methodology is expected to affect a small number of current outstanding ratings. The affected rating(s) will be placed under review and will be resolved within six months.

The ‘Consumer Product Rating Methodology – is available for download at www.scoperatings.com or on this link.