DBRS Confirms Renault S.A. at BBB (low), Stable Trend

DBRS Limited (DBRS) has confirmed the Issuer and Senior Unsecured Debt ratings of Renault S.A. (Renault or the Company) at BBB (low), with a Stable trend. The confirmation incorporates Renault’s adequate business profile as an original equipment manufacturer with an established automotive market position in Europe and a strong Renault-Nissan Alliance (the Alliance) with Nissan Motor Company Ltd. (Nissan, rated A (low) by DBRS; while the Alliance benefits Renault in terms of synergies and various strategic areas, the companies’ respective ratings are not closely linked). The confirmation also reflects the Company’s continued sound liquidity position as Renault’s financial profile (particularly its balance sheet) has been meaningfully restored in recent years in line with the divestiture of its former equity stake in Volvo AB amid constant free cash flow generation over the past several years. Accordingly, Renault’s industrial operations have a net cash position, with credit metrics being commensurate with the assigned ratings.

The Company’s earnings performance in 2013 through H1 2014 has been progressively improving, with Renault’s automotive operations generating moderate profitability. The improved financial results are a function of ongoing cost cutting efforts of the Company, bolstered by positive volume and mix effects that reflect Renault’s improving product cadence. DBRS notes that the Company’s geographical sales footprint has diversified considerably over the past five years, with Renault’s international (i.e., outside Europe) sales representing 50.5% of total sales in 2013 compared with 34.0% in 2009. Renault Samsung Motors (80% owned by the Company) is among the market leaders in South Korea; moreover, through the Alliance, Renault has indirect exposure to China and India where Nissan enjoys a solid presence. While the Company remains significantly exposed to Europe’s southern markets, it is also well positioned in Central Europe through its Dacia brand Renault’s 25% stake in AvtoVAZ (Russia’s largest auto manufacturer).

Going forward, DBRS anticipates that Renault’s financial performance will improve further. Automotive conditions in the Company’s core European market appeared to have finally bottomed out last year. While the continent’s recovery is expected to prove modest and protracted, any resumption of growth in the region (bolstered by Renault’s recent market share gains) should benefit future earnings generation. Moreover, the Company is expected to achieve further benefits from cost cutting, primarily through the joint efforts of the Alliance, which has generated consecutive record levels of synergies in the past couple of years (that have exceeded a combined annual amount of EUR 2.5 billion).

DBRS expects Renault’s ratings to remain constant over the near to medium term as earnings performance will likely benefit from modestly improving conditions in Europe and ongoing growth across other international markets, supported by the Company’s ongoing cost-reduction efforts.

Notes:
The applicable methodologies are Rating Companies in the Automotive Manufacturing Industry (November 2014) and DBRS Criteria: Financial Ratios and Accounting Treatments Non Financial Companies (January 2014), which can be found on our website under Methodologies.

This rating did not include issuer participation and is based solely on public information.

The full report providing additional analytical detail is available by clicking on the link under Related Research at the right of the screen or by contacting us at info@dbrs.com.