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20 Mar 2009
Approximately EUR59.4 billion of debt affected.
Frankfurt, March 20, 2009 -- Moody's Investors Service today affirmed Volkswagen's ("VW")
A3 long term and Prime-2 short term ratings and changed the outlook
to stable from positive. At the same time Moody's removed
Volkswagen from the status of a Government Related Issuer (GRI).
Falk Frey, Senior Vice President and the lead analyst at Moody's
for the European automotive sector, said: "The outlook
change to stable from positive reflects the unlikelihood that VW's
ratings would be upgraded within the next 12-18 months given the
severe decline in VW's key car markets and the expected sharp deterioration
in operating performance and cash flow generation in the current year".
Separately Moody's decided that for Volkswagen the GRI methodology
will no longer be appropriate for the following reasons. Moody's
believes that a differentiation between government ownership and non-government
ownership in the European automanufacturer industry does not make a difference
in the support of the government as currently evidenced by the French
state providing 3.0 billion loans to Renault (15%
ownership) and Peugeot (no-government ownership). Furthermore,
VW's majority shareholder Porsche SE has replaced the state of Lower
Saxony as the largest shareholder and strives for an ownership of more
than 75%, a domination agreement as well as the removal of
the VW article of association that allows for the state of lower Saxony
a blocking minority with 20% of the voting rights.
In 2008, VW's consolidated revenues increased by 4.5%
compared to 2007 driven by 6.3 million unit sales to customers,
an increase of 1.1% compared to the previous year.
The rise in revenues to 113.8 billion (+4.9
bn) partly also benefited from the full consolidation of Scania since
July 22, 2008, adding 3.9 bn in turnover in 2008.
The company also reported an increase in operating profit to 6.3
billion (+3.0%) or 0.2 bn above previous
year. While VW reported a 0.2 bn increase in operating
profits in the Automotive Division of 5.4 billion the respective
result for the Financial Services Division declined by 50 million
against previous year to 0.9 bn.
The significant reduction in demand for cars and light vehicles in the
fourth quarter 2008 resulted in a high working capital consumption of
2.3 billion in the course of 2008. Moody's adjusted
free cash flow from the industrial business turned negative, consuming
0.9 billion in 2008, also impacted by the dividend
payout of 0.7 billion in 2008. However, VW's
reported net liquidity position in the automotive division decreased by
5.4 billion in 2008 to 8.0 billion including
the 2.5 billion cash outflow for the acquisition of Scania
Volkswagen has already announced measures to adjust production rates to
the lower level of demand and reduce inventories as key initiatives to
limit cash burn in 2009. Moody's will closely monitor progress
in these efforts and the effects resulting from reducing fixed costs.
The stable outlook on Volkswagen's rating takes into account Moody's
expectation of the company's ability to contain operational performance
and cash flows decline within acceptable levels in the current year and
to recover in 2010 to financial flexibility and liquidity profile in line
with the A3 rating category evidenced by EBITA margin levels trending
towards 5.0% in 2010 as well as the ability to generate
positive free cash flows while at the same time keeping the sequence of
product renewal and product expansion programs without delay as well as
a continued regional diversification projects. Furthermore,
the stable outlook anticipates that Volkswagen's successful model
introduction continues to result in further market share gains in the
company's key markets especially Western and Eastern Europe,
which will allow the company to outperform the car market in terms of
volume. In addition, Moody's expects the company's
weakened liquidity profile will be of temporary nature and will be strengthened
over the short term.
Moody's anticipates a significant deterioration in Volkswagen's
profitability and key credit metrics in the first quarter 2009 based on
the company's expectation of group car demand declining by around
15% and an operating loss in the first quarter 2009. Moody's
ratings anticipate a sequential improvement of volumes and cash flow generation
in the subsequent quarters. The ratings could come under downward
pressure however, in case of evidence that the market environment
would turn worse than anticipated with regards to volumes or prices and
the company's inability to adjust capacity measures in a timely
and adequate manner resulting in a further sizable cash absorption by
the industrial operations in fiscal year 2009.
Volkswagen's issuer rating could be downgraded in case of (i) a
substantial weakening cash generation, evidenced by negative free
cash flows close to 1.0 billion (ii) inability to recover
the expected weakness in profitability in 2009 to levels with EBITA margins
(as adjusted by Moody's) not trending towards 5.0%
in 2010 with continuous improvements in the course of 2009 as well as
(iii) a Debt/EBITDA not recovering below 3.0x and interest coverage
(EBITA/interest expenses) not trending towards 5.0x could pressure
the rating or (vi) a shift in the company's financial policy.
Moody's notes that a potential domination agreement between Porsche
SE and VW would result in a rating assessment of the combined Porsche
SE and Volkwagen Group structure. Moody's understands that
a domination agreement currently needs a 80% voting majority to
get be implemented which could be blocked be the state of lower Saxony's
20.1% votes and thus is rather unlikely to be implemented
in the intermediate term. However, Moody's is of the
opinion that such an agreement could result in a materially weaker credit
profile of VW and consequently would put pressure on the current rating.
The principal methodology used in rating Volkswagen was the Global Automobile
Manufacturer Industry Methodology, which can be found at www.moodys.com
in the Credit Policy & Methodologies directory, in the Ratings
Methodologies subdirectory. Other methodologies and factors that
may have been considered in the process of rating this issuer can also
be found in the Credit Policy & Methodologies directory.
Moody's last rating action on Volkswagen was an outlook change to
positive from stable and an affirmation of the A3 long-term and
Prime-2 short-term ratings on June 26, 2008.
Volkswagen AG headquartered in Wolfsburg, Germany is Europe's
largest car manufacturer, with a market share of 20.3%
in Western Europe in 2008, and ranks number three globally with
total annual unit sales of approx. 6.3 million vehicles.
In 2008, Group revenues were approx. 114 billion.
Senior Vice President
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's changes Volkswagen's outlook to stable and affirms the A3/P-2 ratings.
Eric de Bodard
Corporate Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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