(The following statement was released by the rating agency)
LONDON/BARCELONA, May 26 (Fitch) Fitch Ratings has affirmed
Long-Term Issuer Default Rating (IDR) and senior unsecured notes
at 'A-' and
Short-Term IDR at 'F2'. The Outlook on the Long-Term IDR is
Stable. A full list
of rating actions is at the end of this release.
The ratings reflect Daimler's strong business profile and robust
The group maintains a net cash position and adjusted funds from
gross leverage remained low at 0.7x at end-2016. Daimler is
headwinds in the trucks business, particularly in the US, but
the core automotive division supports our expectations for group
margin remaining around 9% over the rating horizon.
The ratings also reflect the relatively weak and volatile free
cash flow (FCF)
compared to investment-grade peers. A sustained improvement
towards 2.5% would
be positive for the ratings.
KEY RATING DRIVERS
Large, Leading, Diversified Business: Daimler AG has wide
business diversification. It has leading positions in the
segment with its Mercedes-Benz and smart brands (MBC division).
(DT) is the world's largest heavy-truck manufacturer, ranking
number one in
Europe and North America, and second or third in several other
countries/regions, including Brazil and Japan. The group also
positions in the global van and bus markets.
Weak Free Cash Flow: Fitch expects the group's operating margin
between 8.5%-9.0% in the foreseeable future. However, the free
margin is weak for the rating category, around 1% on average
since 2013, as cash
from operations (CFO) is absorbed by high capex and generous
dividends. Net cash
flows have also been hindered by regular contributions to
pensions and financial
services (FS) operations. We expect FCF to be around 2% through
2019. Weak FCF
remains a key rating constraint.
Strong Car Business: We expect MBC's operating margins to remain
solid, above 9%
in the foreseeable future, despite moderate erosion after 2017.
we believe profitability will remain supported by the robust
and favourable developments in China. This should offset renewed
from close peers, risks related to the changing powertrain mix
investments to meet increasingly stringent emission legislation
and new mobility
trends. We believe that Daimler's increasing efforts towards
future mobility trends put the group in a better competitive
Resilient Truck Margins: DT's operating margin was back under
pressure in 2016
but remained relatively solid at 5.9%, bearing in mind the
significant drop in
unit sales. We project a recovery of its operating margin to
more than 6% in
2017 and towards 7% by 2019 thanks to a sales recovery, further
Diesel Exposure: An accelerating decline in diesel penetration
in Europe would
be negative for Daimler, similar to its German peers. Firstly,
its fleet has a
heavy bias to diesel in Europe (between 60% and 70%, compared
with less than 50%
for the overall car market in Europe) as diesel is critical to
meet 2020 EU CO2
emission targets, for which concerns are growing. Missing
targets could cost
Daimler a few hundred million euros. Secondly, a rapid swing to
powertrains would be negative for used car prices and, in turn,
to which the group is exposed. Increasing sales of electric
partially lower the risk.
Robust Credit Metrics: Key credit ratios have been supported by
cash inflows from divestments made between 2012 and 2014 and the
low debt level.
Metrics remain solid despite recurring and extraordinary cash
has important headroom in its ratings, with funds from
operations (FFO) gross
adjusted leverage below 1x and a sustained net cash position at
Daimler's business and financial profiles are largely in line
with peers at a
similar rating level. The group has a weaker competitive
position than large
volume manufacturers but this is fully offset by its positioning
in the premium
segment. Daimler is among the top-three premium car
manufacturers and has
recovered in the past couple of years market shares lost to
and to BMW following its recent product offensive and
rejuvenated model line-up.
Its image remains strong and its brand value extremely high.
Business diversification is supported by the group's exposure to
trucks and bus segments, despite the latter's greater
cyclicality and volatility
than the passenger car business. Synergies between the latter
divisions and the
passenger car business have typically been more limited than
with the vans
division but we expect that increased technological convergence
in the fields of
autonomous driving and electric mobility will provide more
divisions in the medium term.
The group's financial profile is robust for the ratings.
profitability has been lower and more volatile than those of its
close peers BMW
and Audi, but it has strengthened continuously in the past few
years. The truck
division's profitability also compares adequately with other
large global truck
makers. However, amongst the highest-rated manufacturers,
Daimler's net cash
generation has been the most volatile in the past decade and is
weak for the
rating category, in part due to extraordinary contributions to
regular contributions to its financial services operations.
leverage has been consistently negative since 2010 and compares
other similarly rated peers.
No country-ceiling, parent/subsidiary or operating environment
Fitch's key assumptions within our rating case for the issuer
- industrial operations' revenue growth of around 4% in 2017
between 1%-2% in 2018 and 2019;
- industrial operating margin improving to more than 9% in 2017
as a result of
the strong MBC's product line-up but declining modestly to just
below 9% by
- capex to increase to around EUR9.5 billion in 2017 and
maintained around 6.5%
of sales in 2018-2019;
- around neutral working capital movements;
- dividends increasing to EUR3.7 billion in 2017 and rising
EUR4.0 billion by 2018.
Future Developments That May, Individually or Collectively, Lead
- FCF margin remaining above 2.5% (2016: 0.2%, 2017E: 2.0%,
- The ability to meet the group's target for MBC operating
margin of 10% through
the cycle (2016: 9.1%, 2017E: 9.6%, 2018E: 9.4%)
- DT operating margin approaching 8% through the cycle, (2016:
6.2%, 2018E: 6.6%), with a minimum of 3%
Future Developments That May, Individually or Collectively, Lead
- Operating margins remaining below 2% (industrial)/3% (group),
2016: 7.9%, 2017E: 9.4%, 2018E: 9.1% -- group: 2016: 8.4%,
2017E: 9.2%, 2018E:
- Material negative FCF (actual or expected) for more than three
from weak underlying performance, or shareholder-friendly
- Gross adjusted leverage above 2x (2016: 0.7x, 2017E: 0.7x,
2018E: 0.7x) and
net adjusted leverage above 1x (2016: -0.3x, 2017E: -0.3x,
Healthy Liquidity: The group has historically reported a strong
position. Gross cash and marketable securities from the
industrial business were
EUR14.2 billion at end-2016, including Fitch's adjustments for
not readily available cash. It more than covered total financing
EUR10.9 billion including adjustments for operating leases and
FULL LIST OF RATING ACTIONS
Long-term IDR affirmed at 'A-'; Outlook Stable
Senior unsecured debt affirmed at 'A-'
Short-Term IDR affirmed at 'F2'
Commercial paper affirmed at 'F2'
Guaranteed notes affirmed at 'A-' and 'F2'
The guaranteed long-term and short-term debt of the following
issuers has been
affirmed at 'A-'/'F2':
Mercedes-Benz Australia/Pacific Pty. Ltd.
Daimler International Finance BV
Mercedes-Benz Japan Co. Ltd.
Daimler Canada Finance Inc.
Daimler Finance North America LLC
Mercedes-Benz Finansman Turk A.S.
Mercedes-Benz South Africa (Pty) Ltd.
Daimler Mexico S.A. de C.V.
+44 20 3530 1231
+34 93 323 84 11
Fitch Ratings Espana. S.A.U.
85 Paseo de Gracia
+44 20 3530 1244
Summary of Financial Statement Adjustments
- Fitch adds an 8x multiple of lease payments to debt, resulting
in a EUR4.3
billion debt adjustment in 2016.
- Fitch has treated EUR3.3 billion (equivalent to 2.5% of sales)
for working capital and operating needs.
- Fitch adjusts the debt deconsolidated to Daimler's financial
so that debt to equity at the FS business does not exceed 6x.
For 2016 this
results in approximately EUR8.1 billion of debt being allocated
- A EUR1.0 billion fine resulting from European Commission
related to the truck industry was classified by Fitch as
- Fitch has also changed its treatment of extraordinary pension
Daimler's German pension schemes. These contributions are now
investing rather than operating cash flows, resulting in a an
uplift to FFO
margin of 2.2pp and 0.8pp for 2014 and 2015, respectively,
compared to those
published previously. FCF remains unchanged.
Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530
Additional information is available on www.fitchratings.com. For
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
Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017)
Dodd-Frank Rating Information Disclosure Form
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS
ON THE AGENCY'S
PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS,
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE
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
PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS
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
subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone:
(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
information), Fitch relies on factual information it receives
from issuers and
underwriters and from other sources Fitch believes to be
conducts a reasonable investigation of the factual information
relied upon by it
in accordance with its ratings methodology, and obtains
of that information from independent sources, to the extent such
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
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,
engineering reports, legal opinions and other reports provided
by third parties,
the availability of independent and competent third- party
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
should understand that neither an enhanced factual investigation
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
Ultimately, the issuer and its advisers are responsible for the
accuracy of the
information they provide to Fitch and to the market in offering
other reports. In issuing its ratings and its reports, Fitch
must rely on the
work of experts, including independent auditors with respect to
statements and attorneys with respect to legal and tax matters.
and forecasts of financial and other information are inherently
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
were not anticipated at the time a rating or forecast was issued
The information in this report is provided “as is” without any
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
methodologies that Fitch is continuously evaluating and
ratings and reports are the collective work product of Fitch and
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
unless such risk is specifically mentioned. Fitch is not engaged
in the offer or
sale of any security. All Fitch reports have shared authorship.
identified in a Fitch report were involved in, but are not
for, the opinions stated therein. The individuals are named for
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
investor, or the tax-exempt nature or taxability of payments
made in respect to
any security. Fitch receives fees from issuers, insurers,
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
(or the applicable currency equivalent). The assignment,
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
under the United States securities laws, the Financial Services
and Markets Act
of 2000 of the United Kingdom, or the securities laws of any
jurisdiction. Due to the relative efficiency of electronic
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.
authorizes it to provide credit ratings to wholesale clients
ratings information published by Fitch is not intended to be
used by persons who
are retail clients within the meaning of the Corporations Act