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Rating Action:

Moody's changes Peugeot's outlook to positive, Ba1 CFR affirmed.

25 Oct 2018

Frankfurt am Main, October 25, 2018 -- Moody's Investors Service, ("Moody's") has today affirmed the Ba1 corporate family rating (CFR) for Peugeot S.A. (Peugeot, PSA) and the Ba1-PD probability of default rating (PDR) and at the same time changed the outlook on all ratings to positive from stable. Concurrently, Moody's has also affirmed the Ba1 senior unsecured rating of GIE PSA Tresorerie.

"PSA's outlook change to positive reflects the continued improvements in the company's operating performance and a stronger and faster improvement in the restructuring of Opel Vauxhall (Opel, OV). In addition, Moody's believes that PSA has additional potential to further improve its financial metrics although in an environment that will be more challenging towards year-end and in particular in 2019", says Falk Frey, a Senior Vice President and lead analyst for PSA. "The rating also reflects the expectation that PSA has restructured its business in a way that would offset its exposure to predominantly Europe and therefore higher risk of cyclicality by its agility to adjust capacity and cost quickly", Mr. Frey added.

A full list of affected entities and ratings can be found at the end of this press release.

RATINGS RATIONALE

PSA has demonstrated a remarkable turnaround of its operations since 2012 when the group was generating a highly negative EBITA negative free cash flows. Before the acquisition of Opel in 2017, PSA generated an EBITA margin of 4.0% (FY2016) and turned a net debt (as adjusted by Moody's) position of EUR8.2 billion (FY2013) into a Net cash position of EUR0.4 billion in 2016. These achievements are based on a significantly improved cost structure and manufacturing efficiencies that have resulted in a constantly lowered break-even point in Europe towards 1.4 million cars in 2017 which is approximately 35% below its current unit sale volumes in the region (2.0 million in 2017, excluding Opel).

We view the acquisition of Opel as a strengthening of PSA's competitive position in Europe and an opportunity to leverage PSA's two core platforms with future Opel and Vauxhall models. Therefore Moody's assumes that PSA will be much better prepared for a cyclical downturn in European car demand than in the last cyclical downturn.

We positively highlight that PSA's efforts to restructure Opel as part of its turnaround strategy have exceeded expectations, with Opel reporting a positive operating profit for the first time in two decades. For H1-2018 period, Opel has generated a recurring operating profit of EUR502 million, representing a recurring operating profit margin of 5.0%, which compares strongly to the -EUR179 million operating loss reported for the year 2017 (-2.5% margin). We caution that this recurring operating profit is largely offset by restructuring cost occurred within the Opel Vauxhall segment and we expect that further substantial restructuring expenses will be required going forward, weighing on future cash flow generation.

In 2018, PSA's continued strong performance is supported by its belated push into the fast-growing sport utility vehicle (SUV) segment, efforts to streamline and refresh its overall product line and improved manufacturing efficiencies. We anticipate that the key model launches in 2018 under the Peugeot, Citroen, DS and Opel brand to boost PSA's sales performance in the remainder of 2018. This should help to regain some of its passenger car market share in Europe (EU+EFTA) which has continuously eroded from 2010 onwards down to 9.7% in 2016, slightly improved to 9.9% (excluding Opel) in 2017 and 10.4% in H1 2018.

We positively note that the material investments necessary to employ PSA's electrification strategy will be spread over a larger vehicle base, while Opel's car models will leverage on PSA's recent efforts in CO2 emission reductions, having the lowest emission levels of European OEMs. Opel also provides PSA with a production facility in the UK that could hedge the combined group's production position in case of a hard Brexit.

POSITIVE OUTLOOK

The positive outlook reflects PSA's continued and ongoing improvements in operating performance driven by efficiency and cost structure improvements over the past years and successful and fast restructuring benefits from the integration of Opel that have resulted in credit metrics that could justify an upgrade should those be sustained over the next 12-18 months in an environment that might become more challenging for the industry.

WHAT COULD CHANGE THE RATINGS UP/DOWN

The ratings could come under upward pressure should (1) PSA generate positive free cash flows despite anticipated restructuring cash outflows; (2) leverage (debt/EBITDA) fall constantly below 2.0x; (3) profitability be restored to an EBITA margin at or above 5% sustainably and the company's liquidity profile remain solid. Given that in 2017 and based on LTM June 2018 PSAs metrics have been in line with these expectations, upward pressure on the ratings has increased significantly.

The Ba1 ratings could come under pressure should (1) PSA or the combined PSA-Opel group exhibit a sustained negative market share development in its key markets; (2) FCF generation become negative for a sustained period of time also impacted by sizable restructuring expenses relating to the acquisition of Opel or due to the inability to reduce Opel's cash consumption; (3) the company's EBITA margin fall below 3.0%; (4) its leverage (debt/EBITDA) exceed 3.0x on a sustainable basis; (5) the groups liquidity profile materially weaken, or (6) if there are any emission-related issues that would lead to significant fines, or other remediation measures, which is currently not part of our assumptions.

LIQUIDITY

PSA's liquidity profile is solid, supported by a cash balance of EUR13.6 billion as of 30 June 2018, internally generated cash flows and access to committed covenanted syndicated credit facilities of EUR3.0 billion maturing in 2023 with two optional one-year extensions (excluding EUR1.2 billion at Faurecia). These credit facilities were undrawn as of June 2018 and PSA was compliant with the financial covenants included in these credit agreements. These sources are deemed to be more than sufficient to cover the anticipated cash outflows for capital expenditures, maturing debt, working capital needs as well as the cash outflow for the acquisition of Opel.

..Issuer: GIE PSA Tresorerie

Affirmations:

....Commercial Paper, Affirmed NP

....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Ba1

Outlook Actions:

....Outlook, Changed To Positive From Stable

..Issuer: Peugeot S.A.

Affirmations:

.... LT Corporate Family Rating, Affirmed Ba1

.... Probability of Default Rating, Affirmed Ba1-PD

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

....BACKED Senior Unsecured Medium-Term Note Program, Affirmed (P)Ba1

....BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Ba1

Outlook Actions:

....Outlook, Changed To Positive From Stable

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.

Peugeot S.A. (PSA) is Europe's (EU+EFTA) second-largest maker of passenger cars with its brands Peugeot, Citroën, DS, Opel and Vauxhall. In addition PSA holds a 46.3% interest in Faurecia SA (Ba1 stable, fully consolidated in PSA's results), one of Europe's leading automotive suppliers (turnover of EUR20.2 billion in 2017), and has a 25% shareholding in Gefco, France's second-largest transportation and logistics service provider. PSA also provides financing to dealers and end-customers through its finance arm Banque PSA Finance in joint ventures: (1) with Santander Consumer Finance for PCD operations, and (2) with BNP Paribas Personal Finance for OV operations. In the twelve months ending June 2018, PSA generated revenues of EUR73 billion and reported a recurring operating income of EUR5.0 billion.

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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