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January 28, 2008 |
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FIAT SPA: Improved Performance Cues Moody's to Keep Ba1 Ratings Moody's Investors Service affirmed Fiat SpA's Ba1 Corporate Family Rating, and the group's other long-term senior unsecured ratings. At the same time, the positive outlook was maintained. The short term Not Prime rating remains unchanged. "In 2007 Fiat continued on its successful path towards a sustainable recovery of its financial profile mainly driven by further operating improvements at Fiat Group Automobiles but also higher contributions from all other industrial businesses in particular Iveco and CNH", Falk Frey, Senior Vice President and the lead analyst at Moody's for the European automotive sector, said. "This strong performance of Fiat is very much in line with Moody's expectations of late August when we changed our outlook to positive on the rating". "Moody's believes that 2008 might be more challenging for Fiat, as a weakness in the overall economy and the strengthening competitive landscape could slow down the strong growth observed in the last few years. Should Fiat be able to sustain its market share performance achieved in Europe last year also during 2008 while at least consolidating the level of operating profitability reached in 2007, the ratings could be upgraded to investment grade over the next 6 to 12 months," Frey went on to say. Moody's says that the positive outlook is based on the expectation that Fiat is well positioned to sustain the current momentum, benefiting from: (i) the strong demand of the Fiat 500 launched in third quarter 2007; (ii) a gradual overhaul of its Alfa Romeo and Lancia models; (iii) an ongoing improvement of Fiat Group Automobiles' dealer network; as well as (iv) ongoing efficiency gains. Moody's nonetheless notes that company's performance may no longer be aided by the favorable 2007 environment, notably in the company's core markets, but that the heavy restructuring engaged by the company in the past years should mitigate this possible headwind. As Moody's outlined in its last press release dated Aug. 22, 2007, the possibility of another positive rating change as indicated by the positive outlook would be mainly dependent on Fiat's ability to demonstrate the robustness of its current business model in a more challenging market environment in 2008. Among those challenges are Fiat's ability: (i) to maintain positive market share trend in Western Europe and Latin America, Fiat's principal markets and (ii) to further solidify the profitability and cash flows which will be necessary to fund rising capital expenditure needs in order to keep a robust and steady renewal rate. This sustained development is a key factor - in Moody's view - to sustain the regained strength in the company's competitive position and a factor where Fiat has to close the gap compared to its direct peers. A successful execution of these challenges should go in line with a trajectory of credit metrics towards RCF/Net debt above 50%, which is one of the metrics expected from Baa Automotive credits. Moody's last rating action on Fiat was an upgrade of the Corporate Family Rating to Ba1 with a positive outlook from Ba2 on Aug. 22, 2007. Fiat S.p.A., headquartered in Turin, is one of the largest industrial groups in Italy and the fourth largest European-based automobile manufacturer, with revenues of EUR58.5 billion generated in fiscal year 2007. The company is also a leading European-based manufacturer of commercial vehicles and one of the largest producers of agricultural equipment in the world. |
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