November 28, 2017 / 4:52 PM / 17 days ago

Fitch Upgrades Renault to 'BBB'; Outlook Stable

(The following statement was released by the rating agency) PARIS, November 28 (Fitch) Fitch Ratings has upgraded Renault SA's Long-Term Issuer Default Rating (IDR) and senior unsecured rating to 'BBB' from 'BBB-'. The Outlook on the Long-Term IDR is Stable. The rating action reflects Renault's solid track record in continuously strengthening the group's financial profile, including profitability, cash generation and financial structure. Profitability, notably operating and free cash flow (FCF) margins, is consistent with that of the mid-point of the 'BBB' rating category, according to Fitch's Rating Navigator for automotive manufacturers, and we expect the improvement to be sustained even when the group faces renewed cyclical pressure in some markets. Solid underlying funds from operations (FFO) and continuously positive FCF have enabled Renault's financial structure to strengthen considerably since the financial and automotive crisis in 2008-2009, with FFO-adjusted net leverage falling to less than 0.5x in 2017 from 5.6x at end-2009. We believe that the group's sound liquidity and healthy financial structure provide Renault with more flexibility to navigate the next cyclical downturn or potential financial challenges without significantly impairing its main credit ratios. KEY RATING DRIVERS Resilient Earnings and Cash Flow: Restructuring measures have improved the cost base of Renault, lowered its breakeven point and made it more resistant to a possible downturn and potential financial challenges. Automotive operating margin improved to 4.7% in 2016, from breakeven in 2012, and we expect it to remain above 4.5% in the foreseeable future, after including the dilutive effect from the full consolidation of Avtovaz in 2017. Its FCF margin has remained consistently positive since 2009 at 1.5%-2.5% despite increasing dividends since 2011. Capex has been maintained at adequate levels. Strong Credit Metrics: Net financial debt has fallen substantially since 2009 as a result of positive FCF and asset sales, while earnings and FFO have rebounded in the same period. FFO-adjusted net leverage has declined continuously to 0.3x at end-2016 from 5.6x at end-2009, providing Renault with more flexibility to navigate the sector's next cyclical downturn. We expect consistently positive FCF above EUR1 billion per annum in the next two to three years to help further reduce net leverage. Our projections of FCF margin of 1.5%-2% could, however, come under pressure from accelerated investments and costs to restructure associates. Pressure to Increase Profitability: We project operating margins to remain above 6% between 2017 and 2019. Profitability will be negatively affected by the consolidation of Avtovaz but we expect this to be offset by an acceleration of synergies to be derived from the alliance with Nissan Motor Co., Ltd (BBB+/Stable) and Mitsubishi Motors and further operational measures to match leading margins posted by close peers. This is consistent with Renault's latest medium-term targets to reach a 7% operating margin by 2022, on revenue growing to more than EUR70 billion, including a minimum 5% operating margin over the same period. Benefits from Alliance: While Renault's scale remains modest on a standalone basis, compared with large international peers such as Volkswagen AG, Toyota Motor Corporation and Ford Motor Company, it stands to gain substantial synergies from its alliance with Nissan. Furthermore, the recent addition of Mitsubishi to the alliance will provide further opportunities to share various costs, including manufacturing, purchasing and R&D. This is an important advantage in the context of new powertrains and autonomous driving technologies. Furthermore, dividends received from associates exposed to other markets where Renault is not present provide a diversified source of cash. European Volume Manufacturer: Renault derives the majority of its revenue from the less profitable mass-market small- and medium-sized car segments, where competition is fiercest and price pressure strongest. Renault's sales also retain a bias towards Europe. However, the success of the entry range has been pivotal in compensating for the sales decline of the core Renault models and bolstering profitability and geographical diversification. We also expect the latter to increase as international markets should outperform Europe, leading Renault to derive around 50% of its revenue from outside Europe in the medium-term. Avtovaz Recapitalisation: The cash impact of Avtovaz's recent recapitalisation and debt restructuring is limited for Renault in view of its comfortable liquidity and solid FCF. We view the dilutive effect on Renault's reported operating profit from the consolidation of Avtovaz's weak earnings as an accounting treatment with no major credit impact. Nonetheless, we expect Avtovaz to remain a drag on Renault's earnings and financial profile, despite our projections for stronger operating margins stemming from the recovery of the Russian market. DERIVATION SUMMARY Renault compares well with global automotive manufacturers at the 'BBB' level. On a standalone basis, Renault is somewhat smaller than General Motors Company (GM, BBB/Stable), Ford Motor Company (BBB/Stable) and Hyundai Motor Company (BBB+/Stable) and about the same size as Kia Motors Corporation (BBB+/Stable, aligned with Hyundai, but assessed at 'BBB' on a standalone basis) but Renault's alliance with Nissan (extended to Mitsubishi Motors since its acquisition by Nissan) provides it with substantial economies of scale and synergies. Renault's brand positioning (combining brand value and market share in our Rating Navigator for Automotive Manufacturers) is slightly weaker than its US peers'. However, we believe Renault's relative position should incorporate Dacia, which despite not having a high brand value and leading market shares, provides enhancing product and geographic diversification as well as healthy contribution to profitability. Compared with Hyundai and Kia, we see a much closer comparison in terms of competitive position and brand positioning. Renault's financial profile is broadly comparable with similarly-rated international manufacturers'. Its operating margin is lower than Ford's, GM's and Hyundai's but in line with Kia's; FCF margin and net leverage are broadly similar to Ford, GM and Kia; GM's cash flow from operations (CFO)-to debt is somewhat stronger at above 100% but Renault's 40%-50% compares adequately with Ford's and Kia's. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Industrial operations revenue up about 15% in 2017, including the consolidation of about EUR2.8 billion of Avtovaz revenue and further growth in mid-single digits in 2018-2019; - Automotive core operating margin (excluding Avtovaz) increasing continuously to less than 5.5% by 2019 and Avtovaz's margin improving gradually to about 2%; - Capex remaining at 6.2%-6.5% of industrial sales; and - Dividend payment to increase to more than EUR900 million by 2019 from EUR700 million. RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action -Operating margin remaining above 5% on a sustained basis. -FCF margin comfortably above 2% on a sustained basis. -CFO/lease adjusted debt above 60%. -FFO-adjusted net leverage remaining below 0.5x. Future Developments That May, Individually or Collectively, Lead to Negative Rating Action -Operating margin falling below 3% on a sustained basis. -FCF margin below 1% on a sustained basis. -CFO/lease adjusted debt below 30%. -FFO-adjusted net leverage increasing above 1.5x. LIQUIDITY Healthy Liquidity: Liquidity is ample, including EUR11.4 billion of readily available cash and liquid investments for industrial operations at end-2016, following Fitch's adjustments for minimum operational cash of about EUR1.4 billion and not readily available financial assets. In addition, committed credit lines of EUR3.3 billion at the automotive division and EUR4.6 billion at the sales financing segment, were undrawn at end-2016. Renault maintains a prudent financial policy, including a reported net cash position around EUR5 billion and liquidity reserves of at least 20% of revenue through 2022. Marc Ladreit de Lacharriere has an equity interest of greater than 5% in or serves on the board of Renault S.A. Mr. de Lacharriere is the controlling shareholder of Fimalac, S.A., which owns a 20% equity interest in Fitch. Contact: Principal Analyst Aurelien Jacquot Associate Director +33 1 44 29 91 37 Supervisory Analyst Emmanuel Bulle Senior Director +34 93 323 8411 Fitch Ratings Espana S.A.U. Diagonal 670 08028 Barcelona Committee Chairperson Paul Lund Senior Director +44 20 3530 1244 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email: francoise.alos@fitchratings.com; Adrian Simpson, London, Tel: +44 203 530 1010, Email: adrian.simpson@fitchratings.com. Summary of Financial Statement Adjustments - Fitch considers the financial profile of Renault's industrial operations in its analysis as financial services debt is expected to be repaid by financial services receivables. However, due to an undercapitalisation of the group's financial services business under Fitch's methodology, we adjust the debt of the industrial operations by EUR1 billion to reduce financial services debt-to-equity to 7x from the reported 9x at end-2016. Fitch also adjusts cash balances for minimum operational cash requirements of about EUR1.4 billion, adds an 8x multiple of operating leases to debt, totalling EUR1.8 billion, and adds a further EUR0.8 billion to debt with respect to de-recognised trade receivables. Additional information is available on www.fitchratings.com. For regulatory 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 the secondary. Applicable Criteria Corporate Rating Criteria (pub. 07 Aug 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here 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 WEB SITE AT 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below