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11 Feb 2011
Approximately EUR 5.1 billion of debt affected
Frankfurt am Main, February 11, 2011 -- Moody's has today affirmed the Ba1 Corporate Family rating of Renault
S.A.("Renault") and changed the outlook to positive
The outlook change to positive acknowledges the stronger than anticipated
recovery in Renault's financial metrics that benefitted from the
cash inflow of EUR3.0 billion resulting from the sale of its B-shares
in AB Volvo as well as an improvement in operating performance and solid
cash flow generation in 2010. Free cash flow generation (FCF) continued
to benefit from a tight control of capital expenditures (capex),
working capital and the omittance of the dividend payment. The
resulting material improvement in credit metrics, albeit from low
levels, and more confidence from the rating agency for a positive
trajectory of the credit metrics are the key factors driving the positive
outlook. Nonetheless there are risk to this scenario should the
light vehicle demand in Western Europe, and in particular in France,
be even weaker than currently expected or factors driving the weak operating
profitability of the second half of 2010 not be corrected.
In 2010, the group's operating performance and credit metrics
demonstrated material improvements from the very weak levels achieved
in 2009 and 2008 thanks to strengthening industry volumes and asset disposals.
The reported operating margin of its automotive activities recovered to
1.1% compared to -2.8% in 2009.
However, the positive momentum in its automobile division weakened
in H2 2010 (operating margin -0.1%) compared to H1
2010 (2.2%) mainly in light of a deteriorating country and
price mix as well as higher input costs. The group's lower
cost base and its ambition to realize further costs synergies with Nissan
should support Renault in improving profitability further in the next
few years. A significant improvement in Renault's operating
profits before the contribution of its associated companies remains a
precondition for an investment grade rating in the future. The
risk remains that intense price competition in Europe and pressure from
increased raw material costs could offset any benefits from cost synergies
and cost savings.
The Ba1 rating continues to be supported by the group's business
profile with solid market positions in various regions, the successful
introduction of its entry level range and the benefits from its alliance
with Nissan (Baa2/stable). Going forward, we expect the company
to materially improve the profitability in its core automobile division
with a moderate downside risk linked with weak outlook for passenger car
demand in Europe as well as intensifying price competition in the industry
that could delay a recovery. The current rating also considers
the group's conservative financial policy with a healthy liquidity
profile and balance debt maturity profile.
On the other hand , Renault's inability to return to positive
operating income in its automobile division in 2010 (a loss of EUR68 million
calculated as Automotive operating margin of EUR396 million less other
operating income & expenses of EUR -464 million) despite the
strengthening industry conditions weighs negatively on the rating at this
time. More fundamentally the company remains reliant -- although
to a lesser extent than in the past - on a few successful models
and geographical diversification is still limited with approx.
70% of revenues being generated in Europe. . This
makes the group vulnerable to declining passenger car demand in France
and a slow recovery in Western Europe in 2011. Moody's cautions
about the risk that pressure from rising R&D needs, intense
price competition in Europe, and increased raw material costs might
partially offset improvements in profitability and FCF generation in the
An upgrade to Baa3 could be envisaged over the next 12-18 months
in case Renault would demonstrate improving market share performance in
its key markets as well as a significant recovery in its operating performance
(excluding the contribution from Nissan, Avtovaz and its remaining
stake in AB Volvo) with operating margins of above 2% on a sustainable
basis. This should also be reflected in Debt/EBITDA ratios of 2.5x-3.5x.
In addition, we would expect the company to generate a positive
Free Cash Flow through the cycle of around EUR300-750 million per
Converesely the ratings could come under downward pressure in case of
(i) an erosion in Renault's competitive position in its key markets
reflected in market share losses, (ii) evidence that the market
environment would turn worse than anticipated with regards to volumes
or prices, (ii) the company's inability to turn around the
operating performance of its automobile division as well as (iv) a sizeable
cash absorption in the current year against the company's target
to generate a positive free cash flow.
At 31 December 2010, Renault's principal liquidity sources
consisted of cash on balance sheet in the amount of EUR8.8 billion,
availability under undrawn committed credit lines of EUR4.0 billion,
as well as potential cash flow generation from operations over the next
12 months. These cash sources provide adequate coverage for the
major liquidity requirements that could arise during the next 12 months.
These consist of short-term debt maturities of approximately EUR
4.7 billion, capital expenditures, working capital
funding, day-to-day needs as well as expected dividend
..Issuer: Renault S.A.
....Outlook, Changed To Positive From
The last rating action on Renault was a downgrade to Ba1/not Prime with
a stable outlook from a Baa2/P-2 under review for possible downgrade
on February 20, 2009.
The principal methodology used in this rating was Global Automobile Manufacture
Industry published in December 2007.
Headquartered in Boulogne-Billancourt, France, Renault
S.A. ("Renault", rated Ba1/NP/positive)
is one of Europe's leading car manufacturers. The two other
brands offered by Renault are Dacia (Romania) and Renault Samsung Motors
(South Korea). In addition, Renault provides financing to
dealers and end-customers through its wholly owned finance company,
RCI banque. In fiscal year 2009, the group sold 2.6
million vehicles and reported total group revenues of EUR39.0 billion.
Frankfurt am Main
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
Moody's France SAS
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Deutschland GmbH
Moody's changes Renault's outlook to positive; Ba1 ratings affirmed.
An der Welle 5
Frankfurt am Main 60322
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
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