Fitch Assigns Arcelik Senior Unsecured 'BB+' Rating; 'BB+(EXP)' to Prospective Notes

Wed Mar 20, 2013 10:58am EDT

(The following statement was released by the rating agency) LONDON/ISTANBUL, March 20 (Fitch) Fitch Ratings has assigned Arcelik AS a foreign currency senior unsecured rating of 'BB+', and the company's prospective 5-10 years unsecured notes of up to USD1bn an expected rating of 'BB+(EXP)'. The final rating of the bond is contingent upon Fitch receiving final documents conforming to information already received. The expected rating for Arcelik's prospective bond is in line with the company's Issuer Default Rating (IDR) of 'BB+' with a Stable Outlook. The notes are expected to be used to refinance exisiting short-term debt and for general corporate purposes. The notes will be direct, unconditional, unsubordinated and unsecured obligations of Arcelik AS and rank parri passu with all other other outstanding unsecured and unsubordinated obligations of the company. The bond includes a negative pledge provision binding Arcelik, as well as financial reporting obligations, restriction on certain corporate reorganisations, and a covenant limiting transactions with affiliates that do not comply with an arms-length principle. KEY RATING DRIVERS: Stable Financial Performance Arcelik's 2012 financial results were broadly stable and within Fitch's expectations. Strong revenue growth driven by market share gains was tempered by flat profitability margins as a result of cost pressures, especially from raw materials. Free cash flow (FCF) was negative, albeit better than expected, due to working capital needs resulting from the top line growth. Fitch expects Arcelik to demonstrate a slight improvement in its 2013 financial metrics, but remain at levels in line with the present ratings. High Working Capital Needs Although much reduced from 2011 levels, Arcelik still had a high working capital to sales ratio due to the Turkish market practice of the manufacturer financing a portion of customer purchases. The company is addressing its working capital management and Fitch believes there is scope to substantially cut the cash drain through improved inventory and receivables focus. Effective working capital management remains key to Arcelik achieving positive FCF generation. Strong Growth in International Markets Arcelik has achieved strong top line growth in the past two years outside Turkey, taking advantage of more price-conscious consumers in Western Europe as well as its previous marketing and distribution network expansion efforts. Further growth in developed markets in the short to medium term is likely as the company continues to capitalise on its present momentum and current market trends, although this may place pressure on profitability as the company focuses on expanding market share. We note that the company retains relatively limited geographic diversity, which restricts the ratings. Stable Adjusted Leverage Arcelik's reported leverage is negatively impacted by its higher than average working capital needs, as a significant portion of durable goods are sold on credit in Turkey. While this is partly financed by Arcelik, the consumer credit risk is covered by bank letters of credit. Fitch adjusts Arcelik's debt by netting off the debt portion of trade receivables above 60 days of revenues (approximately TRY1.7bn at end-2012) to enable a more accurate peer comparison. On this basis, Arcelik's FFO-adjusted leverage was 2.3x at end-2012 (from 2.1x at end-2011), but is expected to improve to under 2x at end-2013. RATING SENSITIVITIES Positive: Future developments that could lead to positive rating actions include: - Significant improvement in business profile - Reduced structural FX risks - Receivable-adjusted FFO gross leverage ratio below 1x - FFO margins consistently above 10% - FCF margin above 2% on a sustainable basis Negative: Future developments that could lead to negative rating action include: - Receivable-adjusted FFO gross leverage ratio above 2.0x - EBITDA margins below 10.5% - Consistently negative FCF Contact: Principal Analyst Cigdem Cerit Analyst +90 212 279 1065 Supervisory Analyst Tom Chruszcz Director +48 22 338 6294 Fitch Polska SA Krolewska 16 00-103 Warsaw Committee Chairman Frederic Gits Managing Director +33 1 44 29 91 84 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available at For regulatory purposes in various jurisdictions, the supervisory analyst named above is deemed to be the primary analyst for this issuer; the principal analyst is deemed to be the secondary. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable criteria, "Corporate Rating Methodology" dated 8 August 2012 are available at Applicable Criteria and Related Research Corporate Rating Methodology here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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