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FITCH: Panasonic Improves; Sustainability Still a Risk
November 1, 2013 / 2:56 AM / 4 years ago

FITCH: Panasonic Improves; Sustainability Still a Risk

(The following statement was released by the rating agency) SEOUL/SYDNEY, October 31 (Fitch) Fitch Ratings says that Panasonic Corporation's (Panasonic, 'BB'/Negative) on-going restructuring efforts and improvement in operating performance are showing signs of stabilising its credit profile. However, the company's loss-making electronics consumer segment continued to struggle as turnover declined in the first half of the financial year ending March 2014 (H1FYE14). We believe that weak demand will continue to threaten Panasonic's efforts to turn around the TV/panel business segment in FYE14. However, Panasonic's accelerated restructuring plan should continue to help improve margins and cash flow generation from FYE14 onwards. The structural reforms, including eliminating unprofitable businesses and workforce rationalization in the TV, semiconductor and mobile phone businesses, should translate to a lower fixed cost base and lower capex requirements. The company continues to streamline a massive range of products and dispose non-core assets. Panasonic recently announced a sale of 80% stakes in its healthcare unit for JPY165bn and suspension of new product development for smartphone business in Japan. Creditors will welcome these developments and we forecast that the funds flow from operations (FFO)-adjusted leverage (FYE12: 4.6x) should fall over the next 12-18 months. Further reduction in Panasonic's net debt may be short-lived without a proven ability to generate consistent cash flow from operations (CFO) from product sales; solid earnings and improved cash flow in FYE13 and H1FYE14 have been largely driven by restructuring efforts. The continued recovery in the company's financial profile over the medium to long term will hinge on its ability to improve operational fundamentals in its core businesses. Panasonic reported solid H1FYE14 operating results with revenue and EBIT at JPY3,706bn and JPY147bn, respectively (H1FYE14: JPY3,638 and JPY87bn, respectively). Whilst the company is thought of as a consumer electronics company by many, around 60% of turnover and two-thirds of operating profit in H1FYE14 came from the Eco Solutions (predominantly energy related household equipment including lighting and batteries) and Automotive & Industrial Systems segments. These two businesses were also the key profit growth drivers for the company with operating margins almost doubling compared to H1FYE13. We expect the company's audio, visual, and communication (AVC) network division will continue to struggle although its reported EBIT loss of 2.2% in H1FYE14, was narrower than the prior year period. Contact: Shelley Jang Associate Director +82 2 3278 8370 Fitch Ratings Limited, Korea Branch 9F Kyobo Securities Building 26-4 Youido-Dong, Youngdeungpo-Gu Seoul Steve Durose Senior Director Head of APAC TMT Ratings +61 2 8256 0307 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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