(The following statement was released by the rating agency)
Nov 16 - Fitch Ratings has affirmed AB Electrolux's (Electrolux) Long-term Issuer
Default Rating (IDR) and senior unsecured notes at 'BBB'. The Outlook on the Long-term IDR is
The Negative Outlook principally reflects Fitch's concern that Electrolux's
financial profile, specifically its cash generation and leverage ratios, may not
return to a level commensurate with a 'BBB' rating in the short term. While the
company has made positive progress during the first nine months of 2012 towards
improving these metrics, enhancing the flexibility of its cost structure as well
as its exposure to developing markets, it continues to face considerable
challenges in its largest markets and pressure from raw material prices.
Throughout 2012, end-market demand in Electrolux's two major markets of Europe
and North America has been weak, and is unlikely to materially improve in the
short term. Despite this, in the first nine months of the year, the company has
been successful in lifting its EBITDA and funds from operations (FFO) margins,
to 7.4% and 5.9%, respectively, from 6.7% and 5.4% in the corresponding period
last year. This has chiefly been the result of improved internal efficiencies as
well as lower steel prices. Fitch expects the rate of improvement over the
course of 2012 to be maintained into 2013, with these key ratios reaching levels
in excess of 8% and 7%, respectively, by end-2013.
Following their material deterioration in 2011, leverage metrics have also
improved over the course of 2012. At 30 September 2012 the company's gross
lease-adjusted leverage was 2.6x (using the last 12 months (LTM) FFO) from 3.8x
at end-2011, while the net lease adjusted leverage was 1.7x, from 2.4x at
end-2011. Fitch expects these ratios to further improve to the low-mid 2x and 1x
level respectively by end-2013, levels which would place the company firmly
within the parameters of the current rating. Fitch's assumptions are based on no
significant debt funded acquisitions taking place over the course of 2013. Fitch
would treat any acquisitions beyond the scope of management's declared
intentions to spend up to SEK1-2bn on M&A in the short to medium term as event
The ratings reflect Electrolux's strong market position as one of the world's
largest household and professional appliance manufacturers, especially in
Europe, North America and Latin America. Electrolux's size, geographical
diversification and conservative financial profile support the ratings, as does
its strong liquidity position (with short-term sources covering short-term uses
of liquidity by 2.5x as of end-Q312).
However, the ratings continue to be constrained by the mature, cyclical and
highly competitive nature of the European and North American appliance markets.
Electrolux's exposure to fluctuating raw-material prices and foreign exchange
rates are also weaknesses, as is the company's relatively limited free cash flow
(FCF) generation. Furthermore, increasing competition from lower-cost emerging
market producers may present a threat over the medium term, especially in
lower-end product lines.
WHAT COULD TRIGGER A RATING ACTION?
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
- FFO based lease adjusted net leverage above 2x
- FFO margin below 7%
- Negative FCF
- Large debt-funded acquisitions
Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
- FFO based lease adjusted gross and net leverage below 2.5x and 0.75x,
- FFO margin above 8%
- FCF margin above 3%
- A material improvement in the business profile, such as diversification and /
or a significant improvement in cash flow stability.