11/10/2014 Fitch Ratings | Press Release
Fitch Upgrades Renault to 'BBB-'; Outlook Stable Ratings Endorsement Policy
10 Nov 2014 6:59 AM (EST)
Fitch Ratings-Barcelona/London-10 November 2014: Fitch Ratings has upgraded Renault SA's (Renault)
Longterm Issuer Default Rating (IDR) and senior unsecured rating to 'BBB-' from 'BB+'. The Outlook on the Long-term
IDR is Stable.
The upgrade reflects the resilience of Renault's profitability and underlying cash generation in a difficult and
adverse environment, notably for volume manufacturers. Group operating margins increased to more than 3%
in 2013 and we expect further improvement in the medium term, including a further strengthening of core
automotive operations. We believe that Renault's bold restructuring measures have streamlined its cost
structure, lowered its breakeven point and made it more resistant to a possible sharp downturn in one or
several of its markets. Automotive operating margins and free cash flow (FCF) have remained positive since
2008, including between 2011 and 2013 when revenue and profitability declined.
The ratings also reflect Renault's significantly improved liquidity and balance sheet. Adjusted net leverage has
declined continuously since end-2009, to less than 0.5x at end-June 2014 and we expect a further
improvement towards 0x in the next couple of years. The group's sound liquidity and healthy financial structure
provide it with more flexibility to go through the next cyclical downturn or to face potential financial challenges
without significantly impairing its key credit ratios.
KEY RATING DRIVERS
Stronger 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. Adjusted net leverage has declined
continuously since end-2009, from 5.6x, to less than 0.5x at end-June 2014 and this provides the group with
more flexibility to go through the sector's next cyclical downturn.
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, ongoing 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 entry range 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.
Liquidity is healthy, including EUR10.5bn of readily available cash and liquid investments for industrial
operations at end-2013, according to Fitch's adjustments for minimum operational cash of about EUR1.2bn and
not readily available financial assets. In addition, total committed credit lines of EUR7.4bn, including EUR4.1bn
at RCI Banque, were undrawn at end-June 2014.
Future developments that may, individually or collectively, lead to positive rating action include
- Further diversification outside of Europe.
- Sustainable improvement in profitability, in particular group operating margin above 5% and auto operating
margin above 4%.
- Sustainable improvement in financial metrics, including net adjusted leverage below 0.5x and CFO on total
https://www.fitchratings.com/creditdesk/press_releases/detail.cfm?print=1&pr_id=918955&origin=home 1/211/10/2014 Fitch Ratings | Press Release
adjusted debt above 50%.
- Successful and profitable introduction of a premium model range.
Future developments that may, individually or collectively, lead to negative rating action include
- Deteriorating profitability, including auto operating margin remaining below 1.5%, group operating margin
below 3% and FCF margin below 1%.
- Deterioration of key credit metrics, including net adjusted leverage above 1.5x and CFO/adjusted debt below
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