(The following statement was released by the rating agency)
LONDON/BARCELONA, April 07 (Fitch) Fitch Ratings has affirmed
Long-Term Issuer Default Rating (IDR) and senior unsecured debt
at 'BB'. The
Outlook on the Long-Term IDR is Stable.
The ratings reflect the auto supplier's solid positions in the
covers, as well as the recent strengthening of key credit ratios
projections of a further moderate improvement in 2017-2018.
However, the ratings
are constrained by the company's weak free cash flow (FCF),
which is just at
KEY RATING DRIVERS
Leading Market Positions: Faurecia's ratings are supported by
diversification, size and leading market positions as the
automotive supplier. Its large and diversified portfolio is a
strength in the
global automotive market, which is being reshaped by the
development of global
platforms and the acceleration of new technologies and demand
manufacturers. Fitch also believes that the group is well
positioned in some
fast-growing segments to outperform the overall auto supply
market, notably by
offering products increasing the fuel efficiency of its
Business Refocus: We believe that the exterior business (FAE)
disposal in 2016
is an illustration of the group's aim to gradually refocus its
expect Faurecia to use some of the FAE proceeds to acquire
businesses active in
higher added-value and faster-growing segments and to accelerate
sustainable mobility and the interior business. This should help
address some of
the longer-term risks associated with Faurecia's smaller
fast-growing and more profitable segments such as connectivity
driving, compared with large peers such as Continental and
Sound Diversification: Faurecia's healthy diversification by
and geography can smooth the potential sales decline in one
particular region or
lower orders from one specific manufacturer. Its broad
matching its customers' production sites and needs enables
Faurecia to follow
its customers in their international expansion. Faurecia has
greatly reduced its
dependence on some of its large historical customers and no
represents more than 20% of product sales.
Improving Earnings: The operating margin, based on total sales,
5.2% in 2016 from 4.4% in 2015 and we expect a further
progression to more than
6% through 2019. Based on value-added sales, we project the
operating margin to
reach 7.5% in 2019, a level more in line with close peers and a
Cash generation is also improving to levels more commensurate
with the 'BB'
category with the FFO margin increasing to 6.3% in 2016.
Weak FCF: The FCF margin just around 0% remains weak for the
adjusting for derecognised trade receivables that boosted
working capital and,
in turn CFO and FCF. We project that the FCF margin will
increase gradually to
just more than 1.5% by 2019 as the company further optimises its
and working capital, but this incorporates a lower capex ratio
Stronger Financial Structure: Faurecia's financial structure
improved further in
2016 following the FAE disposal and thanks to better underlying
FFO, leading FFO
adjusted net leverage to decline to 1.7x at end-2016 from 2.3x
at end-2015 and
3.2x at end-2014. However, we believe that a modest increase in
potential small acquisitions with part of the FAE proceeds will
improvement in leverage in 2017-2018. We project FFO adjusted
net leverage will
decrease gradually to just above 1x by end-2019 in the absence
Weak Linkage with PSA: We applied our parent and subsidiary
rating linkage (PSL)
methodology and assessed that Faurecia has a slightly weaker
compared to its parent PSA (46.3% stake and 62.9% voting
rights). We also deem
the legal, operational and strategic ties between the two
entities weak enough
to rate Faurecia on a standalone basis.
Faurecia's business profile compares adequately with auto
suppliers at the
high-end of the 'BB' rating category/low-end of the 'BBB'
category. The share of
its aftermarket business, less volatile and cyclical than sales
equipment manufacturers (OEMs), is smaller than tyre
manufacturers such as
Michelin and Continental. Faurecia's portfolio has fewer
products with higher
added value and substantial growth potential than other leading
suppliers including Bosch, Continental, Delphi and Valeo.
However, similar to
other large and global suppliers, it has a broad and diversified
exposure to the
large international auto manufacturers.
With an EBIT margin around 5%, profitability is lower than that
grade-rated peers, such as Continental (BBB+, 10% EBIT margin),
(BBB+, 13.5%) and Delphi (BBB, 13.5%) and 'BB+'-rated Tenneco
FCF is at the low-end of Fitch's portfolio of auto suppliers.
leverage is around 1.5x, lower than Tenneco and improving but
still higher than
Fitch's key assumptions within our rating case are listed below.
- Revenue growth in mid-single digits in 2017-2019. Fitch will
continue to use
total sales, including monoliths, in its analysis in 2017 to
consistency between historical figures and projections. We deem
transition year and will move to value-added sales as soon as
the group reports
its full financial statements based on this accounting standard.
- Operating margins to increase to more than 6% of total sales
- Restructuring cash outflows to increase to nearly EUR100m in
2017 and decline
to about EUR50m per year in the years after.
- Moderate cash outflow from working capital in 2017-2019.
- Capex, including capitalised development costs, to increase
gradually to about
EUR1.1 billion per year.
- Dividend payout ratio of around 25%.
Future Developments That May, Individually or Collectively, Lead
- Operating margins above 6%.
- FCF margins around 2%.
- FFO adjusted net leverage of 1.5x or below.
Future Developments That May, Individually or Collectively, Lead
- Operating margins below 4%.
- FCF margins below 1%.
- FFO adjusted net leverage above 2.5x at any point.
Sound Liquidity: Liquidity is supported by EUR1.2billion of
cash according to Fitch's adjustments for minimum operational
cash of about
EUR0.4billion and total committed and unutilised credit lines
maturing in June
2021 were EUR1.2 billion at end-2016, largely covering
short-term debt of EUR0.3
billion at end-2016. The group's financial flexibility and
further strengthened by the issuance of EUR700 million in senior
in April 2016 and maturing in June 2023. This issue refinanced
repayment of EUR490 million of notes maturing in December 2016
and carrying a
coupon of 9.375%.
FULL LIST OF RATING ACTIONS
+33 1 4429 9137
+34 93 323 8411
Fitch Ratings Espana S.A.U.
Av. Diagonal 601
+44 20 3530 1244
Summary of Financial Statement Adjustments
- Readily Available Cash: As of December 2016, Fitch considered
billion of cash, or around 2% of net sales, is needed for
activities, therefore not readily available for debt repayment.
- Leases: Fitch has adjusted the debt by adding 8x of yearly
- Factoring: Fitch has adjusted leverage calculations for
reintegrating EUR1 billion of off-balance-sheet non-recourse
factoring into the company-reported gross debt as at year-end
2016. The EUR0.2
billion factoring increase during the year has been moved from
inflow to cash flow from financing activities.
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)
Parent and Subsidiary Rating Linkage (pub. 31 Aug 2016)
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 <a
RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES.
FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST,
FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES
AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE.
SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE AT <a
/SITE/REGULATORY. 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
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