Frankfurt am Main, February 16, 2021 -- Moody's Investors Service ("Moody's") has today
downgraded the rating of German-based diversified engineering group
Voith GmbH & Co. KGaA (Voith), assigning a corporate
family rating of Ba1 and probability of default rating (PDR) of Ba1-PD.
The outlook changed to stable from negative. Concurrently,
Moody's has withdrawn Voith's long-term issuer rating
of Baa3 as per the rating agency's practice for corporates with
investment grade ratings. Please refer to Moody's Investors
Service's Policy for Withdrawal of Credit Ratings, available
on its website, moodys.com.
The downgrade to Ba1 reflects the weakening of operating performance and
credit metrics which have been below the requirement for the previous
rating category for a while. Moody's recognizes the company's
initiatives for performance improvements, which will, however,
only be visible in the next 2 to 3 years.
We expect that Moody's retained cash flow to net debt will remain
well below 25% in the next 12-18 months and adjusted debt
to EBITDA to remain above 5.5x, and even when adding cash,
net debt/EBITDA will remain above 4.0x. Apart from a slow
recovery after the global economic downturn in 2020, the company's
profitability is affected by high restructuring costs with benefits only
becoming fully effective as of 2022. Moody's recognizes Voith's
strong market position in its key segments, such as hydro power
plants and paper machines as well a strong liquidity profile which benefits
from a disciplined financial policy.
RATINGS RATIONALE
Voith's rating is constrained by (i) a Moody's adjusted gross
leverage of 7.3x (including pension adjustments) for fiscal year
2020, a level outside of the requirements for the previous Baa3
rating category, and even when adding back existing cash balance
leverage is relatively high, (ii) persistently low profitability
with EBITA margins hovering between 3% and 4% during the
last 4 years, (iii) its cyclical nature in most of its end markets
and only modest revenue growth of around 3% expected in fiscal
year 2021 with related risks of further delays after the 3% decline
in 2020 and (iv) single digit RCF/net debt (Moody's adjusted) in
percentage terms as a result of its low profitability.
Voith's rating is supported by (i) market and technology leadership
in many of its relevant markets, such as hydro power plants and
paper machines; (ii) very diversified and well balanced portfolio,
with the group serving many end markets, which typically follow
different cycles in terms of length and timing, backed by healthy
order backlog in excess of one year of sales; (iii) substantial financial
flexibility given cash & cash equivalents of around €500 million.
It also reflects Voith's relatively conservative financial policy,
which includes a relatively low level of bank debt, but burdened
somehow by high pension liabilities which we add back to adjusted debt.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects our expectation that Voith will be able to
strengthen profitability in its core businesses leading to a Moody's-adjusted
EBITA margin improving towards 5%, Moody's-adjusted
retained cash flow coverage metrics moving towards low twenties in percentage
term of net debt (before restructuring costs) and consistently positive
free cash flow.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade Voith in case of a sustainable strengthening of
its credit profile reflected in a Moody's-adjusted EBITA margin
in the mid-single digits and Moody's-adjusted debt/EBITDA
improving towards 4.0x, Moody's adjusted RCF/net debt
improving towards 25% while preserving a positive free cash flow
generation.
Moody's could downgrade Voith's ratings, if its Moody's-adjusted
debt/EBITDA stays sustainably above 5.0x, Moody's-adjusted
RCF/net debt below 15%, negative free cash flow for a prolonged
period of time, if its strong liquidity profile is weakened or in
case of sizeable M&A activity.
LIQUIDITY
We view Voith's liquidity as strong. Taking into account €123
million invested in term deposits at elected banking partners and deducting
some €205 million of trapped cash, the company had more than
€500 million of cash and cash equivalents on its balance sheet as
of 30 September 2020. This strong cash balance is further supported
by an undrawn €550 million multicurrency syndicated credit facility,
which was refinanced in April 2018 and matures in April 2025. The
facility has no repeating material adverse change clause or financial
covenants with the possibility to increase the credit volume to a maximum
of €750 million. Voith's liquidity is also supported by certain
bilateral committed credit facilities of €375 million. These
sources are sufficient to cover its liquidity needs, including any
intra-year movements of working capital and short-term debt
maturities.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Manufacturing Methodology
published in March 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1206079.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
COMPANY PROFILE
Voith GmbH & Co. KGaA (Voith) is a diversified engineering
group, primarily addressing energy, oil and gas, paper,
raw materials, and transport and automotive markets. Its
product offerings hold leading positions in hydropower generation,
paper machine technology and selected niches of technical services and
power transmission.
Voith employed some 19,400 people in more than 60 countries and
generated sales of €4.2 billion in the fiscal year ended 30
September 2020 (fiscal 2020). The group is privately owned by descendants
of the Voith family, but it has been led by nonfamily senior managers
for decades.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK endorsement
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Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Dirk Goedde
Asst Vice President - Analyst
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
Christian Hendker, CFA
Associate Managing Director
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
