March 12 () - (The following statement was released by the rating agency)
ISTANBUL/ LONDON, March 12 (Fitch) Fitch Ratings has affirmed Arcelik A.S.'s
(Arcelik) Long-term foreign and local currency Issuer Default Ratings (IDR) at
'BB+' and National Long-term rating at 'AA(tur)' The Outlook is Stable.
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.
Positive: Future developments that could lead to positive rating actions
- 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