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Rating Action:

Moody's affirms Renault's Baa3 LT issuer rating, outlook changed to stable

07 Mar 2019

Frankfurt am Main, March 07, 2019 -- Moody's Investors Service ("Moody's") has today affirmed Renault S.A.'s (Renault) Baa3 long term issuer rating, Baa3 long term senior unsecured ratings and the Prime-3 (P-3) short term ratings. The outlook has been changed to stable from positive.

RATINGS RATIONALE

The change in outlook to stable from positive was prompted by the deteriorating operating profitability of Renault throughout 2018 with an acceleration in H2 2018 leaving very limited prospects for the company achieving our profitability target for a higher rating over the next 12 to 18 months, namely a reported operating profit margin for the automotive business of at least 5%.

Renault posted a reported operating profit margin for its automotive business of 3.3% in 2018 (4.3% excluding impairments, capital gains on disposals and restructuring charges), down 130bps from LTM June 2018 and 140bps from fiscal year end 2018 (down 40bps year-on-year pre-exceptionals). The deteriorating operating profitability was mainly linked to lower volumes, raw material cost inflation and negative currency effects whilst Renault's cost cutting efforts under its Monozukuri programme fell slightly below expectations (€421 million savings and €362mio net of G&A increases). The sharp increase in exceptionals (~€500 million increase in impairments, capital gains and restructuring charges) also negatively impacted the group's operating profitability post exceptionals.

Going into 2019 Renault will face a challenging comparison basis for the first six months of the year against a difficult market backdrop in 2019. New product launches mainly in the second half of the year, an acceleration of cost cutting measures and a recovery from a very low basis in certain emerging markets gives us, however, some comfort that Renault can stabilize its operating profitability at current levels.

Moody's has also placed the A2 long term issuer rating of 43.4% owned Nissan Motor Co., Ltd. under review for downgrade on 19th February 2019 to reflect the company's downward revision of its full year to 31st March 2019. The negative earnings trajectory of Nissan will continue to negatively impact our Moody's adjusted EBITDA for Renault (as we are adding back equity income from Nissan to Renault's EBITDA) and could also at some stage negatively impact the dividend income for Renault, although this is not our base case assumptions at the current juncture.

However Renault's rating continues to be supported by the strategic alliance between Nissan, Mitsubishi Motors Company and Renault, which we believe will continue on the operational level. All partners have recently reiterated their commitment to the alliance and are focused on extracting related synergies.

Despite the deterioration in operating profitability, Renault's credit metrics remain solid for the current rating category with an estimated Moody's adjusted gross debt / EBITDA for the automotive business of around 2.0x to 2.5x at fiscal year-end 2018. This offers good headroom against a downgrade trigger of towards 3.5x and should enable Renault to navigate safely through the current volatile market environment. Renault's positive free cash flow generation and solid liquidity position also continues to underpin the company's investment grade rating.

Technological challenges, such as the development of alternative fuel vehicles and autonomous driving will increasingly weigh on Renault's free cash flow generation as this requires continued sizeable capex and R&D spend. Renault's exposure to European auto markets also exposes the company to stringent CO2 emission regulation. However, we believe that Renault is well positioned to cope with that regulation as it is already one of the few companies in the market that is able to offer an attractive electrified model.

LIQUIDITY

Renault has a robust liquidity profile. As of 31 December 2018, Renault's principal sources of liquidity consisted of (1) cash and cash equivalents on the balance sheet amounting to EUR11.8 billion, (2) undrawn committed credit lines of EUR3.5 billion, (3) short-term investments of EUR1.4 billion and (4) expected positive funds from operations over the next 12 months. These cash sources provide good coverage for liquidity requirements that could arise during the next 12 months. These requirements consist of short-term debt maturities of approximately EUR3.3 billion, capital expenditure, working capital funding, day-to-day needs and expected dividend payments.

RATING OUTLOOK

The stable outlook anticipates that Renault will be able to maintain its operating profitability around current levels and to maintain its Moody's adjusted Debt/EBITDA ratio well below 3.5x. The stable outlook also anticipates a continuation of Renault's prudent financial policy, healthy liquidity supported by positive free cash flow generation and balanced debt maturity profile.

The stable outlook further reflects Moody's expectation that Renault's business setup has the capacity to contend with the long-term cyclicality within the global passenger vehicle markets and its challenging landscape as a result of heavy investment requirements for (1) alternative propulsion technologies; (2) driverless vehicles; (3) the shift of production capacities towards alternative fuel vehicles; (4) connectivity as well as (5) regulations relating to vehicle safety, emissions and fuel economy.

What Could Change the Ratings DOWN/UP

In light of Renault's weak operating profitability and the expectation of a challenging market environment over the next 12 months at least we do not anticipate positive rating pressure in the short term.

Longer term upward pressure on the ratings could materialize if Renault achieves and maintains a reported operating profit from its automotive division at or above 5% (excluding the share of income in Nissan), a Moodys-adjusted debt/EBITDA ratio sustainably below 2x and a continuously positive Moodys-adjusted free cash flow above EUR500 million.

Downward pressure on Renaults ratings could build if its strategy of building a consistently profitable model range and infrastructure were to be unsuccessful or if the company were to face declining market shares in key markets. More aggressive financial policies causing a deterioration in the company's financial profile and/or liquidity could also trigger a downgrade.

Downward pressure on the ratings could materialise if the company's reported operating profit from its automotive division were to remain sustainably in the low-single-digit range (in percentage terms), its Moodys-adjusted debt/EBITDA ratio were to increase towards 3.5x or free cash flow were to remain negative for a prolonged period of time.

..Issuer: Renault S.A.

Affirmations:

.... LT Issuer Rating, Affirmed Baa3

....Other Short Term, Affirmed (P)P-3

....Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa3

....Commercial Paper, Affirmed P-3

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

Outlook Actions:

....Outlook, Changed To Stable From Positive

The principal methodology used in these ratings was Automobile Manufacturer Industry published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Falk Frey
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Matthias Hellstern
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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