RPT-Fitch affirms Bosch at 'F1'
Sept 6 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Robert Bosch GmbH's (Bosch) Short-term Issuer Default Rating (IDR) at 'F1'. The agency has also affirmed the short-term debt issued by Bosch and Robert Bosch Finance Corp at 'F1'.
The rating continues to reflect the group's strong business profile and its solid liquidity. However, profitability deteriorated sharply in 2012 and we anticipate only a modest recovery in 2013. Free cash flow (FCF) was negative in 2011, but it recovered to just break even in 2012 and we expect some further improvement in 2013. However, FCF below 1.5% in 2014 and no recovery in profitability including EBIT margin remaining sustainably below 3% will put pressure on the ratings and could lead to a downgrade.
KEY RATING DRIVERS
Strong Business Profile
The rating reflects Bosch's solid and diversified business profile, including leading global positions in automotive supply (powertrain, chassis and aftermarkets), consumer goods (power tools) and industrial technology (hydraulics). Bosch also benefits from strong geographical diversification.
Low Revenue Growth
The ratings are constrained by about 60% of expected 2013 revenue being generated by the automotive supply business, a segment with volatile profitability and cash flow. Fitch estimates revenue growth of about 2% in 2013 on a like-for-like basis after 1.8% in 2012 and 9% in 2011. Bosch has started to address the issue through a partial restructuring of its four business sectors, including an added focus on the more stable and higher-margin automotive aftermarkets segment.
Change in Consolidation Scope
In 2013, Bosch will end the proportionate consolidation of JV subsidiaries, including Bosch Siemens Haushaltsgeraete (BSH) and ZF Lenksysteme. This will decrease revenue by approximately EUR7bn whereas JV earnings will remain in reported EBIT. This change in accounting will have positive impact of approximately 0.5% on the group's reported EBIT and EBIT target, which has been increased to 8% from 7.5%.
Fitch expects EBIT margin to be constrained at about 3.1% in 2013 due to the continued weakness in the automobile industry, expenses connected to the realignment of business segments and the integration of SPX, and the negative impact from the deconsolidation of BSH and ZF Lenksysteme. Bosch targets a return to 8% EBIT margin in the medium term, a level Fitch expects Bosch to reach only after 2016.
Strengthening FCF Expected
Fitch expects FCF to improve to around 2.8% in 2014 from negative in 2011 and 2012. Furthermore, Fitch anticipates Bosch capex for 2013 and after to remain at about 7.5% of revenues, which represents stable outlays of about EUR3.5bn to EUR4bn.
Ample Liquidity, Low Leverage
The company continues to have significant cash and marketable securities reserves of EUR11.5bn, of which EUR4.1bn was held in cash at end-Q113. Bosch also benefits from low FFO adjusted gross leverage, which Fitch expects to decline to 1.0x in 2014 and after. In May 2013, Bosch raised EUR1.5bn in the capital markets with debt maturities of 8 to 20 years and interest rates of 1.6% to 3%.
Conservative Financial Policy
Earnings retention is an important source of financing, in line with the group's conservative financial policy, underpinned by substantial liquidity. Dividend pay outs have always been negligible. Bosch is 92% owned by a foundation, which safeguards its independence. The remaining shares are held by the Bosch family and as treasury stock.
Negative: Future developments that could lead to negative rating actions include:
EBIT margin falling below 3% on a sustained basis, FFO adjusted gross leverage increasing above 1.5x, on a sustained basis, or a material weakening in the group's liquidity profile with a FCF of less than 1.5%.
Positive: An upgrade to 'F1+' is unlikely.
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