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Global Credit Research - 21 May 2010
Frankfurt, May 21, 2010 -- Moody's Investors Service has today affirmed the Baa1 issuer rating of
Knorr-Bremse AG ("KB") and changed the outlook to positive
Rainer Neidnig, lead analyst at Moody's for Knorr-Bremse,
said: "The outlook change to positive reflects the resilience
of Knorr-Bremse's very solid credit metrics despite the severe
recession in 2009 supported by solid market positions on a global basis.
The company's recent performance also underpins the benefits of
the diversification into two equally important segments as well as management's
ability to adjust operations to adverse market conditions."
Although Moody's recognizes that the liquidity profile of the company
is solid for the next 12 months with new confirmed medium term credit
lines established over the last year, the agency notes that these
back-up liquidity arrangements of Knorr-Bremse are moderately
sized and maturing progressively in the next 12 to 24 months, which
provides relatively modest medium to long term funding arrangements for
a company with a high investment grade rating. An upgrade to A3
over the next 12 to 18 months is nonetheless possible should (i) the expected
earnings recovery materialize and (ii) Knorr-Bremse maintain at
least 2009 credit metrics and the current level of medium-term
In 2009, KB group sales amounted to EUR 2,761 million,
down -18% from 2008. Hereby, the performance
of KB's two divisions differed widely. The Rail Vehicle Systems
division performed solidly despite the recessionary environment and recorded
a revenue increase of 9% to EUR 1,553 million driven by solid
growth in Asia. However, the Commercial Vehicle Systems division
was severely impacted by the economic downturn and sales fell steeply
to EUR 1,222 million (-38%) as a result of significantly
lower demand for trucks in Europe and North America. The earnings
development of the two divisions showed a very similar pattern and taking
into account Moody's standard adjustments group EBITDA decreased
to EUR 298 million in 2009 from EUR 447 million in 2008. As the
full year benefit of the cost reduction measures implemented in 2009 will
be reflected in 2010 accounts and given that the commercial vehicle market
has started to stabilize we expect a notable earnings recovery for 2010
and a return to historic profit margins in the near term.
We further note positively that KB managed to reduce net debt to EUR 328
million from EUR 439 million in 2008 (including Moody's standard adjustments
for pensions, operating leases and other debt-like obligations)
despite the challenging environment. This reduction was possible
due to KB's ability to reduce costs, limit capital expenditures
and release working capital which allowed for a solid positive Free Cash
Flow. As a result Debt/EBITDA as adjusted by Moody's increased
only moderately to 1.6x in 2009 from 1.1x in 2008 which
is still a very solid ratio.
Moody's further notes that KB has entered into certain medium credit
facilities with a maturity of 2-3 years. However,
most credit arrangements remain short-term. While we expect
KB's current liquidity cushion to be sufficient to meet the next
12 months needs for cash arising from debt maturities, capital expenditures,
working capital, day-to-day needs and dividend payments
in a stress case scenario where access to capital markets and bank credit
is not available, Moody's views the back-up liquidity
arrangements as no better than moderate for a highly rated investment
The principal methodology used in rating Knorr-Bremse was the Global
Auto Supplier Industry Methodology, which can be found at www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating this issuer can also be found in the
Rating Methodologies sub-directory on Moody's website.
Moody's last rating action on Knorr-Bremse was an affirmation of
the Baa1 Issuer Rating and outlook change to stable from positive on 14
Knorr-Bremse, headquartered in Munich, Germany is the
world leading supplier of brake systems to the truck and railway industry.
In 2009, the company generated revenues of EUR 2.8 billion
of which 44% were generated by the Commercial Vehicle Systems division
and 56% by the Rail Vehicle Systems division. Approximately
30% of group revenues are generated in the aftermarket.
Eric de Bodard
Corporate Finance Group
Moody's France S.A.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's changes outlook on Knorr-Bremse's Baa1 rating to positive
Asst Vice President - Analyst
Corporate Finance Group
Moody's Deutschland GmbH
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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