Press release

Corporates
Auto & Related / France
Renault SA
Update
Key Rating Drivers
Ratings
Long-Term IDR
Senior unsecured
BB+
BB+
Relative Resilience of Profitability: The Positive Outlook reflects the relative resilience of
Renault SA‟s earnings and cash flows in a difficult environment. Operating margin declined in
2012, but recovered to 3% in 2013. Automotive operations‟ profitability has remained positive
since 2009. Fitch Ratings expects a further strengthening of group margins towards 5% by
2016 and of automotive margins towards 3.5%. The cost base benefits from increased
synergies with Nissan, cost-cutting measures and higher production outside western Europe.
Outlook
Long-Term IDR
Positive
Financial Data
Renault SA - Industrial operations
31 Dec 31 Dec
14F
13
Revenue (EURbn)
Operating EBIT/revenue (%)
FCF/revenue (%)
FFO adjusted leverage (x)
FFO adjusted net leverage (x)
CFO/total adjusted debt (%)
FFO fixed charge cover (x)
41.3
1.8
0.6
2.5
0.2
35
6.5
40.9
1.4
1.3
3.3
0.2
33
5.1
Improved Credit Metrics: Net financial debt has fallen substantially since 2009 as a result of
positive FCF and asset sales, while earnings and funds from operations (FFO) rebounded in
the same period. Fitch assumes Renault‟s FFO adjusted net leverage will remain broadly
unchanged at 0.2x at end-2014, after decreasing from 0.7x at end-2011 and 4.8x at end-2009,
and cash from operations (CFO) on adjusted debt will stabilise around 35% at end-2014 in line
with 2011-2013, before rebounding to about 45% at end-2015.
Weak but Improving Mix: Renault‟s sales retain a bias towards Europe, in particular to
weaker southern markets such as Spain, Italy and France, where the eurozone debt crisis has
had the most impact on new car sales. However, on-going and successful diversification has
led to a growing share of sales outside Europe. Renault also derives the majority of its revenue
from the less profitable small- and medium-sized car segments, where competition is fiercest
and price pressure is strongest.
Entry-Level Models Success: The success of the growing Dacia brand is pivotal in
compensating for the sales declines of the core Renault models, and also favours geographical
diversification. In addition, the profitability of the entry range is higher than the automotive
average and therefore bolsters group operating profit.
Relationship With Associates: Nissan Motor Co. Ltd.‟s (BBB/Stable) latest performance plan
calls for increased free cash-flow (FCF) generation and a higher dividend payment to Renault,
its 43.4% shareholder. However, the group intends to redistribute all of the dividends received
from its associates, therefore limiting the benefit for Renault‟s creditors. Renault should also
benefit from a gradual recovery of JSC AvtoVAZ, but Fitch believes that this will only happen in
the medium term.
Related Research
European Auto Manufacturer's Dashboard
1H14 (April 2014)
Fitch: Autonomous Driving not a Short-term
Boost for Automotive Companies
(March 2014)
Scenario Analysis: Slow Recovery in 2014
New Vehicle Sales in Europe (January 2014)
Sound Liquidity: Renault reported cash and cash equivalents of EUR11.7bn at group level
(EUR10.7bn for its industrial operations) at end-2013 and a total of EUR10.1bn of available,
unused credit facilities (EUR3.4bn at Renault SA, and EUR4.1bn at RCI Banque). Total
adjusted financial debt from industrial operations was EUR11.3bn at end-2013 (EUR2.7bn
current liabilities) including a EUR1.9bn adjustment for operating leases.
2014 Outlook: Global Automotive
Manufacturers (December 2013)
Rating Sensitivities
A Comparison of European Auto
Manufacturer's Credit Profiles
(September 2013)
Improving Financial Metrics: An upgrade could come from a sustainable improvement in
credit metrics, including FFO net adjusted leverage below 0.5x and CFO on total adjusted debt
above 40%, as well as improved profitability, in particular, group operating margin trending
towards 3% and auto operating margins trending towards 2% combined with positive FCF.
Analysts
Emmanuel Bulle
+34 93 323 8411
[email protected]
Thomas Corcoran
+44 20 3530 1231
[email protected]
www.fitchratings.com
Deteriorating Credit Metrics: Downward rating pressure could come from negative operating
margins, coming notably from falling global sales, FFO net adjusted leverage remaining above
1.5x and CFO/adjusted debt below 25%.
29 April 2014
Corporates
Immediate Peer Group – Comparative Analysis
Peer Group
Issuer
Country
BBB+
Hyundai Motor Company
Kia Motors Corporation
Sector Characteristics
Operating Risks
Korea (south),
Republic Of
Korea (south),
Republic Of
BBB
Nissan Motor Co., Ltd.
Japan
BBBFord Motor Company
United States
BB+
General Motors Company United States
Renault SA
France
BBFiat S.p.A.
Italy
B+
Peugeot S.A.
France
The industry‟s operational risk is high. Demand is volatile and cyclical, as cars are large
discretionary consumer items, highly exposed to economic trends. The sector is politically and
socially critical to the overall economy, and is subject to potential government interference.
Overcapacity remains a pivotal issue that is difficult to address. Geographical and product
diversification are important to mitigate the impact of cyclicality, although the most recent
downturn was unusually simultaneous across regions. Another industry challenge is the need
to adapt to new business models driven by evolving powertrains and emissions legislation.
Financial Risks
The auto industry is capital intensive and has high operating leverage (high fixed costs),
leading manufacturers to look for economies of scale. Profit margins are usually cyclical and
low in view of persistent price pressure and sharp competition. Working-capital swings can also
be material, as was the case in 2008 and 2009. Healthy and steady liquidity is critical to finance
capex and R&D, and the refinancing needs of captive finance subsidiaries.
Peer Group (At End-2013)
Issuer Rating History
Date
LT IDR
(FC)
Outlook/
Watch
23 Dec 13
18 Sep 13
28 Feb 13
29 Oct 12
19 Sep 12
22 Sep 11
11 Feb 11
7 Oct 10
19 Jul 10
25 Mar 09
18 Feb 09
20 Nov 08
6 Aug 08
5 Jun 07
16 Oct 06
24 Feb 06
25 May 05
8 Dec 04
14 Apr 04
12 Mar 04
2 Sep 03
7 Jun 02
BB+
BB+
BB+
BB+
BB+
BB+
BB+
BB+
BB
BB
BBBBBB
BBB+
BBB+
BBB+
BBB+
BBB+
BBB+
BBB
BBB
BBB
BBB
Positive
Positive
Stable
Stable
Stable
Stable
Stable
Stable
Stable
Negative
Negative
Negative
Stable
Stable
Stable
Stable
Stable
Stable
Positive
Stable
Stable
Stable
''RW" denotes Rating Watch
Snapshot Profile: Major
Issuer-Specific Rating
Factors and Trends
Rating Factor
Statusa
Trend
Operations
Market Position
Finances
Governance
Geography
Average
Average
Average
Average
Average
Improving
Neutral
Neutral
Neutral
Improving
a
Relative to auto peer group
Related Criteria
Corporate Rating Methodology
(August 2013)
Renault SA
April 2014
EBIT margin (%)
FFO adjusted leverage (x)
CFO/total adj. debt (%)
FFO Fixed Charge
coverage (x)
Ford
BBB−/Stable
3.1
1.5
41
10.0
Renault
BB+/Pos
1.4
3.3
33
5.1
GM
BB+/Pos
3.2
0.8
100
5.3
Fiat
BB-/Neg
3.9
3.5
27
4.1
PSA
B+/Stable
(1.0)
7.3
11
2.2
Source: Fitch, companies
Key Credit Characteristics
With relatively high operational and financial risks, auto manufacturers‟ ratings are clustered in
the „BB‟ and „BBB‟ categories, although strong credit characteristics can lift ratings to the „A‟
category. Leverage is usually low, and most groups report a net cash position through the
cycle. However, this is mitigated by weak and cyclical profitability and cash generation, and
higher refinancing risk – notably to meet the high and ongoing financing needs of finance
subsidiaries.
Overview of Companies
Ford Motor Company (BBB−/Stable) – the ratings reflect the significantly improved financial
performance, balance-sheet repair, and product portfolio improvement over recent years. They
also reflect uncertainty about the strength and pace of the global economic recovery, and the
durability of global auto demand.
Renault SA (BB+/Positive) – the ratings reflect the weak but improving product and
geographic mix, improved performance of associates, particularly Nissan, and better credit
metrics. However, profitability remains weak and the environment in Renault‟s key market is
poor.
General Motors Company (GM, BB+/Positive) – the ratings reflect the strengthening of the
credit profile as volume has grown, net pricing has improved, and additional cost efficiencies
have taken hold. With a low debt load and a strong liquidity position, GM has significant
financial flexibility that will help it manage through a potential deterioration in auto market
conditions.
Peugeot S.A. (PSA, B+/Stable) – the ratings reflects Fitch‟s more cautious expectations than
the group‟s, regarding a return to positive automotive profitability and operating free cash flow
by end-2014.
2
Corporates
Renault SA———— Auto & Related Median ———— Developed BB Cat Median ———— Source: Company data; Fitch.
Distribution of Sector Outlooks
Directional Outlooks and Rating
Leverage
Interest Cover
Watches
including Fitch expectations
including Fitch expectations
5.0
20.0
4.0
15.0
Negative
Stable
Positive
7 Apr 14
3.0
7 Apr 13
10.0
2.0
0%
25%
50%
75%
100%
Fitch‟s expectations are based on the
1.0
5.0
0.0
0.0
agency‟s internally produced, conservative
2010
rating case forecasts. They do not represent
2011
2012
2013
2014F 2015F
2010
2011
2012
2013 2014F 2015F
the forecasts of rated issuers individually or in
aggregate. Key Fitch forecast assumptions
Debt Maturities and Liquidity at end-2013a
include:
Debt maturities
 slight auto revenue growth in 2014,
followed by growth in mid-single digits in
2015-2016;
 negative FX and raw materials impact
(EURbn)
2014
2015
2016
2017
After 2017
Cash and equivalents
Undrawn Committed Facilities
2.9
1.9
1.5
1.7
2.2
10.7
3.5
a
offset by manufacturing and labour cost
savings as well as positive operating
Industrial operations, excluding derivative
liabilities
Interest Cover
including Fitch expectations
20.0
15.0
10.0
5.0
Source: Company, Fitch
leverage from increasing volumes;
0.0
 capex broadly flat as percentage of
2010
2011
2012
2013 2014F 2015F
revenue in 2014-2016;
 dividend to increase from increased
Nissan dividend payment passed through
to Renault‟s shareholders;
 no material acquisition or disposal in the
foreseeable future.
FFO Profitability
including Fitch expectations
Capex/CFO
including Fitch expectations
14%
100%
12%
80%
10%
Definitions
 Leverage: Gross debt plus lease
adjustment minus equity credit for hybrid
instruments plus preferred stock divided by
FFO plus gross interest paid minus
interest received plus preferred dividends
plus rental expense.
 Interest cover: FFO plus gross interest
8%
60%
6%
40%
4%
20%
2%
0%
0%
2010
2011
2013
2014F 2015F
FY13 Geographical Split
Revenues
paid minus interest received plus preferred
dividends divided by gross interest paid
2012
Asia Pac
9%
2010
2011
2012
2013 2014F 2015F
FY13 Segmental Split
Outer ring: Revenue
Inner ring: EBIT
Eurasia
7%
Automotive
Sales financing
5%
plus preferred dividends.
 FCF/revenue: FCF after dividends divided
by revenue.
Euromed
11%
 FFO profitability: FFO divided by revenue.
 For further discussion of the interpretation
of the tables and graphs in this report see
Fitch‟s “Interpreting the New EMEA and
40%
60%
Europe
58%
Americas
15%
Source: Company
Source: Company
95%
Asia-Pacific Corporates Credit Update
Format” Special Report, dated 25
November 2009 and available at
www.fitchratings.com.
Renault SA
April 2014
3
Corporates
Renault SA
FINANCIAL SUMMARY
31 Dec 2013
EURm
Year End
31 Dec 2012
EURm
Year End
31 Dec 2011
EURm
Year End
31 Dec 2010
EURm
Year End
31 Dec 2009
EURm
Year End
40,932
(0.82)
1,242
4,411
10.78
8.61
0.92
41,270
(3.19)
729
4,036
9.78
8.47
4.49
42,628
9.38
1,091
3,922
9.20
11.27
1.83
38,971
15.60
1,099
4,168
10.70
5.47
(0.01)
33,712
(10.79)
(396)
2,750
8.16
3.98
7.11
10.24
9.80
6.45
0.03
1.30
10.10
8.95
6.86
0.09
1.36
12.20
7.83
8.59
0.05
1.37
5.29
8.22
3.90
0.02
1.06
5.11
8.36
3.32
0.11
2.02
Debt Leverage of Cash Flow (x)
Total Debt with Equity Credit/Operating EBITDA
Total Debt Less Unrestricted Cash/Operating EBITDA
7.66
4.82
8.18
5.22
8.05
5.73
7.44
4.91
11.92
8.86
Debt Leverage Including Rentals (x)
Annual hire lease rent costs for long-term assets (reported and/or estimate)
Gross Lease Adjusted Debt/Operating EBITDAR
Gross Lease Adjusted Debt /FFO+Int+Rentals
FFO Adjusted Net Leverage
FCF/Lease Adjusted Debt (%)
313
7.68
7.37
4.83
1.04
249
8.17
7.29
4.80
5.29
238
8.04
5.27
3.84
2.34
242
7.47
11.27
7.65
(0.01)
255
11.59
17.98
13.63
6.88
Debt Leverage Including Leases and Pension Adjustment (x)
Pension and Lease Adjusted Debt /EBITDAR + Pension Cost
7.51
8.29
8.12
7.49
11.52
Balance Sheet Summary
Cash and Equivalents (Unrestricted)
Restricted Cash and Equivalents
Short-Term Debt
Long-Term Senior Debt
Subordinated debt
Equity Credit
Total Debt with Equity Credit
Off-Balance-Sheet Debt
Lease-Adjusted Debt
Fitch- identified Pension Deficit
Pension Adjusted Debt
12,503
26,678
6,777
323
33,778
2,504
36,282
36,282
11,973
26,399
6,364
258
33,021
1,992
35,013
1,261
36,274
9,089
25,226
6,086
241
31,553
1,904
33,457
1,077
34,534
10,566
23,912
6,823
273
31,008
1,936
32,944
708
33,652
8,418
23,737
8,807
241
32,785
2,040
34,825
640
35,465
Cash Flow Summary
Operating EBITDA
Gross Cash Interest Expense
Cash Tax
Associate Dividends
Other Items before FFO (incl. interest receivable)
Funds from Operations
Change in Working Capital
Cash Flow from Operations
Total Non-Operating/Non-Recurring Cash Flow
Capital Expenditures
Dividends Paid
Free Cash Flow
Net (Acquisitions)/Divestitures
Net Equity Proceeds/(Buyback)
Other Cash Flow Items
Total Change in Net Debt
4,411
(450)
(356)
433
321
4,359
(787)
3,572
105
(2,749)
(550)
378
(278)
0
(327)
(227)
4,036
(451)
(345)
507
596
4,343
(467)
3,876
1,233
(2,847)
(411)
1,851
(117)
0
(318)
1,416
3,922
(501)
(273)
335
2,319
5,802
(2,449)
3,353
38
(2,455)
(154)
782
(156)
(56)
(2,592)
(2,022)
4,168
(507)
(186)
88
(1,263)
2,300
(330)
1,970
(30)
(1,867)
(77)
(4)
3,082
60
787
3,925
2,750
(329)
(192)
81
(851)
1,459
3,204
4,663
65
(2,309)
(22)
2,397
(86)
127
520
2,958
9
42
76
11
49
76
11
51
72
11
55
79
15
68
83
Profitability
Revenue
Revenue Growth (%)
Operating EBIT
Operating EBITDA
Operating EBITDA Margin (%)
FFO Return on Adjusted Capital (%)
Free Cash Flow Margin (%)
Coverages (x)
FFO Gross Interest Coverage
Operating EBITDA/Gross Interest Expense
FFO Fixed Charge Coverage (inc. Rents)
FCF Debt-Service Coverage
Cash Flow from Operations/Capital Expenditures
Working Capital
Accounts Receivable Days
Inventory Days
Accounts Payable Days
Renault SA
April 2014
4
Corporates
The ratings above were solicited by, or on behalf of, the issuer, and therefore,
Fitch has been compensated for the provision of the ratings.
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Renault SA
April 2014
5

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