(The following statement was released by the rating agency)
Dec 13 -
Summary analysis -- Robert Bosch GmbH ----------------------------- 13-Dec-2012
CREDIT RATING: AA-/Stable/A-1+ Country: Germany
Primary SIC: Motor vehicle
Credit Rating History:
Local currency Foreign currency
28-Mar-2001 AA-/A-1+ AA-/A-1+
10-Dec-1985 --/A-1+ --/A-1+
The ratings on Germany-based automotive component group Robert Bosch GmbH (Bosch) reflect Standard & Poor’s Ratings Services’ view of the group’s business risk profile, which we classify as “strong” under our criteria. The ratings also reflect our assessment of the company’s financial risk profile as “minimal”.
Bosch is among the top three players in most of the segments it serves in the car components, home appliances, electrical hand tools, and hydraulics industries.
The ratings are also supported by the group’s track record of very conservative financial policies, including high financial flexibility and very low leverage. These strengths are tempered by cyclicality and competitiveness of the auto industry as 59% of the group’s total sales in 2011 was to automotive original equipment manufacturers, compared with 59% in 2010, 57% in 2009, 59% in 2008, and 61% in 2007. Bosch is also exposed to volatility in raw material prices and significant pricing pressures from automakers to reduce costs.
We expect the global car components industry to remain cyclical and competitive. Bosch benefits from above-average customer diversification compared with peers’ and does not rely on any single car maker. It also benefits from above-average growth in its target segments of the components industry, such as braking systems and diesel technology. Bosch is one of the leaders in industrial and hydraulics equipment. It has a strong market position in heating and hot-water technology. The group benefits from good geographic diversification, which we expect will be further enhanced by expansion, notably in China and India.
S&P base-case operating scenario
Considering the tough economic environment in Europe and the fragile recovery in North America, we expect a moderation of demand in the auto industry in 2012 and 2013 and consequently, estimate that Bosch’s revenues will increase by 2%-3% in 2012 and 2013, after 9% growth in 2011.
Our base-line assumptions include a reported EBITDA margin in the range of 10%-11% in 2012 and 2013, in line with Bosch’s historical operating profit margins. This implies an EBIT margin of about 4%-5%, which is lower than our earlier forecast of 6%, in view of our mildly lowered expectation of Bosch’s sales growth in 2012. Our base-line EBIT margin forecast for 2012 compares with a reported EBIT margin of 5.3% in 2011 and 6.7% in 2010.
Operating profit (EBIT) in 2011 was hampered by high raw material prices and substantial goodwill impairments (EUR564 million) in the photovoltaic business. In view of the negative developments in the photovoltaic industry in 2012, we would not rule out further impairment charges for this business line. In the short term, the biggest risk to our base-line assumption remains Bosch’s dependence on the automotive sector, where visibility is low and sudden changes of production volumes could create substantial changes in operating profits.
S&P base-case cash flow and capital-structure scenario
In our base-line case for 2012 we expect Bosch to generate funds from operations (FFO) of about EUR5.0 billion, which is about in line with the EUR4.7 billion achieved in 2011, but slightly lower than our earlier forecast due to our lower sales estimate for 2012. We do not expect significant changes to the company’s investment policy. As a result, we expect capital expenditures to stay at historical levels. Given our forecast for FFO, we therefore continue to expect that Bosch will likely generate positive free operating cash flow (FOCF) in the near term.
In 2011, as in previous years, Bosch had high cash balances and fully-adjusted FFO to debt stood at 15x. In light of this and our view that Bosch is likely to generate a positive FOCF in 2012 with only very minimal dividend payments, we believe that Bosch will continue to report very strong credit metrics with fully-adjusted debt to EBITDA significantly below 1.0x in 2012 and 2013.
Our base-line scenario includes cash payouts for acquisitions of EUR2 billion, notably for the takeover of SPX Service Solutions (EUR0.9 billion), which was cleared by cartel authorities in December 2012. We have also incorporated the recent divestiture of a 5.3% stake in Japanese automotive supplier Denso Corp. (AA-/Negative/A-1+) for a consideration of EUR1.1 billion.
We do not assume any change in the dividend and acquisition policy for the future, considering the conservative financial policies of the past.
The short-term rating is ‘A-1+’ and we view liquidity as “exceptional” underour criteria. As of Dec. 31, 2011, the company had high balances of cash and marketable securities totaling EUR11.6 billion. This amount includes reported cash balances and short-term investments (EUR4.0 billion) and noncurrent securities (EUR7.6 billion).
At year-end 2011, Bosch had immaterial short-term financial maturities. It has no financial maturities in 2012. Loans of about EUR0.4 billion and a EUR700 million bond issued in 2009 fall due in 2013. All of Bosch’s long-term or short-term financial maturities are covered by existing liquidity. This year Bosch has raised EUR0.3 billion via a loan from the European Investment Bank (AAA/Negative/A-1+).
Bosch has two commercial paper programs with a volume of EUR1.0 billion and $2.0 billion. As of Dec. 31, 2011, availability under these programs was EUR1.0 billion and $2.0 billion respectively. Under the medium-term note program of EUR3.0 billion, EUR2.35 billion was drawn as of Dec. 31, 2011.
We think that FOCF before acquisitions and disposals for 2012 will be positive, at EUR200 million-EUR300 million, and should consequently not affect the liquidity position. As a result, and in view of the disposal proceeds and acquisitions, the cash balance at year-end 2012 will likely be as high as in December 2011. In the past, Bosch has shown good access to public markets, also demonstrated by the company’s placement of a EUR1.1 billion bond in difficult capital market periods, such as June 2009.
The stable outlook reflects our expectation that Bosch will adhere to its current financial policy to maintain substantial cash resources and limited use of debt. Given our expectation that global auto demand will have expanded mildly in 2012 and 2013, we believe Bosch’s credit metrics will stay strong and considerably above the indicative measures that we view as commensurate with the current rating, namely FFO to debt higher than 70% and positive free cash flow generation.
We could lower the rating if we saw a material risk that Bosch’s financial measurers would fall short of our expected levels, or if the liquidity situation deteriorated markedly. In view of Bosch’s financial performance, even in the economic and financial crisis of 2009, with FFO to debt of 300% and debt to EBITDA of 0.3x, negative rating pressure appears low to us.
Related Criteria And Research
-- “https://www.globalcreditportal.com/ratingsdirect/showArticlePage.do?object_id=5426464&rev_id=9&sid=875862&sind=A& ”, May 27, 2009
-- “https://www.globalcreditportal.com/ratingsdirect/showArticlePage.do?object_id= 5137121&rev_id=8&sid=875862&sind=A&”, Jan. 28, 2009