(The following statement was released by the rating agency)
WARSAW/LONDON, March 28 (Fitch) Fitch Ratings has affirmed
(Arcelik) Long-term foreign and local currency Issuer Default
Ratings (IDR) at
'BB+' and National Long-term rating at 'AA(tur)' The Outlooks
are Stable. Fitch
Ratings has also affirmed Arcelik's senior unsecured rating at
KEY RATING DRIVERS:
Stable Financial Performance
Arcelik's 2013 financial results were broadly stable and within
expectations. The recent slowdown in domestic economy was
international revenue growth, backed by market share gains and
deterioration in the Turkish lira. Free cash flow (FCF) remained
negative due to
increasing working capital needs in 2013. Fitch expects muted
growth in the
medium term as the domestic economy slows down, and funds from
margins to be inline with historical averages.
High Working Capital Needs
Arcelik has a high working capital to sales ratio due to the
practice of the manufacturer providing financing for customer
capital needs increased to 38% of sales as of end-2013 from 32%
negatively affected by the devaluation in Turkish lira and Gezi
Park protests in
3Q13. Fitch believes that the scope for cutting cash drainage
will be dependent
on inventory management and receivables focus. Effective working
management remains key to Arcelik returning to positive FCF
Persistant negative FCF would place pressure on the present
Strong Growth in International Markets
Arcelik has achieved strong top line growth in the past two
Turkey, taking advantage of more price-conscious consumers in
Western Europe as
well as its previous marketing and distribution network
Further growth in developed markets in the short to medium term
is likely as the
company continues to capitalise on its present momentum and
trends, although this may place pressure on profitability as the
on expanding market share. We note that the company has
geographic diversity, albeit improving, which restricts the
Stable Adjusted Leverage Expected
Arcelik's reported leverage is negatively affected by its higher
working capital needs, as a significant portion of durable goods
are sold on
credit in Turkey. While this is partly financed by Arcelik, the
risk is transfered to retailers while Arcelik's credit risk to
the retailers 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
TRY1.7bn at end-2013) to enable a more accurate peer comparison.
On this basis,
Arcelik's FFO-adjusted leverage was 1.9x at end-2013 (from 2.8x
Fitch expects slower delevaraging in the next two years until
the political risk
subsidies, but still forecasts FFO adjusted leverage slightly
supporting the current rating.
Increased Macroeconomic Risks:
Fitch notes that a prolonged decline in currency along with
shocks from country's political crisis poses a risk for Turkish
ratings in 2014. Although Arcelik's FX exposure is somewhat
balanced by its
export revenues and hedging, it is still vulnerable to a higher
slowdown in domestic market and any cost increases that could
Turkish lira devaluation.
Negative: Future developments that could lead to negative rating
- Receivable-adjusted FFO gross leverage ratio above 2.0x.
- FFO margin below 8%.
- Consistently negative FCF.
- Increase in the unhedged balance sheet mismatch between
foreign currency debt
Positive: Future developments that could lead to positive rating
- 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.
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Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530
Additional information is available on www.fitchratings.com. For
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
Applicable criteria, "Corporate Rating Methodology", dated 5
August 2013, are
available at www.fitchratings.com.
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and
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