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Rating Action:

Moody's changes outlook on Piaggio back to stable

05 May 2010

Approximately EUR150 million of debt rated

Milan, May 05, 2010 -- Moody's Investors Service has today changed the outlook to stable from negative on the Ba2 corporate family rating (CFR) and probability of default rating (PDR) of Piaggio & C SpA as well as the Ba2 senior unsecured rating on Piaggio's notes due 2016. Today's rating action was prompted by the resilience of the company's operating performance during 2009 and Moody's expectation that key credit metrics will improve from the level reported at fiscal year-end (FYE) December 2009.

"Despite the challenges faced during 2009 and the resulting modest reduction in group revenues, Piaggio's operating margins have improved, with reported EBITDA margin increasing to 13.5% at FYE 2009 from 12% reported at FYE 2008," says Paolo Leschiutta, Vice President - Senior Analyst and Moody's lead analyst for Piaggio. "The improvement reflects the company's success in reducing costs, thanks largely to greater efficiencies in its procurement function and increasing returns from recent investments that were aimed at stepping up the company's production capacity and presence across Asian countries."

Even though Piaggio's financial leverage -- measured as debt/EBITDA (adjusted for pension, operating leases and development costs) -- was relatively high for the Ba2 rating category at FYE 2009, Moody's notes that this was inflated by a significant amount of cash balances at year-end following the company's bond issue, the proceeds of which had not yet been entirely applied to reduce debt. "Looking ahead, Moody's expects a gradual improvement in key credit metrics, although any significant reduction in indebtedness, excluding movements related to the seasonality of the business, will be delayed by the ongoing capex plan," continues Mr. Leschiutta.

Piaggio's Q1 2010 results offered further evidence of a recovery in the company's performance, with significant improvements in volumes, top-line and profitability compared to the same period in 2009 given the impact of the economic crisis. Indeed, Q1 2010 results showed a +11.2% and +19.7% pick-up in revenues and volumes, respectively, for the group as a whole, with ongoing pressure only in the Americas and European LCV businesses. The pick-up in volumes and revenues was particularly strong during Q1 10 in Asia, thanks to the beginning of production in Vietnam since mid-2009. As at Q1 2010, Piaggio's EBITA margin stood at 6.6%, which compares favourably with the figure reported for the same period in 2009 (3.8%). Looking ahead, Moody's would expect Piaggio to maintain a satisfactory level of profitability, in line with that reported in 2009, with some upside potential offered by the company's increasing production activity in Asia and from new products coming to the market.

Piaggio's Ba2 CFR reflects: (i) Piaggio's broad and well-recognised brand portfolio; (ii) the company's leading market position across Europe; (iii) its growth prospects in Asian markets; and (iv) Moody's expectation of modest improvements in Piaggio's credit metrics. However, Piaggio's rating also reflects: (i) the soft current state of consumer spending; (ii) the company's concentration in mature European markets, particularly the Italian market; and (iii) the need to restore the operating performance of its motorbike division. The stable rating outlook assumes a degree of improvements in the company's key credit metrics from levels at FYE December 2009 and an adequate liquidity profile going forward.

According to Moody's, an upgrade to the rating could result from an improvement in Piaggio's operating margin above its historical level and a reduction in the company's expansionary investments, both of which would lead to a sustained reduction in financial leverage -- reflected by a debt/EBITDA ratio towards 2.0x -- and the tight control of the company's working capital management. The CFR could potentially be downgraded in the event of a deterioration in Piaggio's operating performance, as this would lead to the company's financial leverage rising above 4.0x and to a contraction in its cash flow leverage, as reflected by an RCF/net debt ratio in the high single-digits on an ongoing basis.

Moody's previous rating action on Piaggio was implemented on 26 November 2009, when Moody's assigned a (P) Ba2 rating to the proposed senior unsecured notes issuance. Prior to that, the outlook was changed to negative on 11 May 2009 following a deterioration in the company's operating performances.

The principal methodology used to rate Piaggio was the "Global Consumer Durables" rating methodology, published in August 2007, 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 Piaggio can also be found in the Rating Methodologies sub-directory on Moody's website.

Based in Italy, Piaggio is a leading global manufacturer and distributor of light mobility vehicles for both personal and business purposes. In 2009, the company reported total consolidated revenues of EUR1.487 billion and sold 607,700 vehicles. With a global widespread presence of production and R&D plants and ten names under its brand portfolio, the company ranks as one of the world's top four players in its core business.

London
Paloma San Valentin
Managing Director
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Milan
Paolo Leschiutta
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
Telephone:+39-02-9148-1100

Moody's changes outlook on Piaggio back to stable
No Related Data.
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