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May 13 (The following statement was released by the rating agency)
Fitch Ratings has upgraded Panasonic Corporation's
(Panasonic) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs)
and local-currency senior unsecured ratings to 'BBB-' from 'BB+'. The Outlook is
Stable. Simultaneously, its Short-Term Foreign- and Local-Currency IDRs have
been upgraded to 'F3' from 'B'.
The upgrade in the ratings reflects Panasonic's strong financial results in the
financial year ended 31 March 2014 (FY14) following restructuring efforts.
Panasonic has improved margins and reduced debt, which bolsters its credit
profile. However, the company continues to face challenges in its consumer
KEY RATING DRIVERS
Margin Improvement: Panasonic improved its profitability and operating
performance in FY14, a trend that Fitch expects to continue. The company's
on-going restructuring efforts, including downsizing of unprofitable businesses
(TVs, mobile phones and semiconductors), consolidation of manufacturing
facilities and labour force rationalization contributed to a healthy margin.
EBIT margin increased to 3.9% in FY14 from 2.2% a year earlier.
Significant Deleveraging: Improved cash generation, controlled working capital
and modest capex spending are likely to contribute to a stronger balance sheet
in the medium term. Panasonic's leverage significantly improved during FY14 as
the company paid down debt. Gross debt was reduced to JPY642bn as at FYE14 from
JPY1,143bn a year earlier. We expect FFO-adjusted leverage to be at around 2.5x
at FYE15 (FYE14: 2.3x).
Robust Operations Continue: We believe Panasonic will continue to report solid
earnings. The Eco Solutions and automotive-related businesses are the main
profit growth drivers for the company, with operating margins in these
businesses more than doubling in FY14 from FY13. Panasonic reported strong
operating results in FY14 with revenue and EBIT at JPY7,737bn and JPY305bn
(FYE2013: JPY7,303 and JPY161bn), respectively.
Weak Consumer Electronics Outlook: Risks to Panasonic's operations continue to
linger in its consumer electronic businesses which face intense competition and
an expected increase in consumption tax. Panasonic plans to focus more on the
business-to-business segment and shift away from consumer retail products, which
should mitigate this risk and reduce volatility in its operating margin.
Operating profit generated from non-consumer businesses accounted for more than
half of total profit during FY14.
Structural Reform Continues: Panasonic's announcement that it will continue to
restructure its operations is a positive development as it will enable the
company to deal with operating difficulties more efficiently. Panasonic has
reduced the number of its divisions to 43 from 49 and transferred all of its
consumer electronics businesses to the Appliance division. However, Fitch
expects the reorganization costs to be smaller than in the previous year because
most of the major changes - mainly eliminating unprofitable businesses - were
made during 2014.
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
- EBIT margins below 3.5%
- FFO-adjusted leverage above 3.5x.
Positive: Future developments that may, individually or collectively, lead to a
positive rating action include:
- EBIT margin greater than 4.5%
- FFO-adjusted leverage falling below 2.5x