FERRARI S.P.A. Heavy Manufacturing / Italy

Transcription

1 RATING UPDATE FERRARI S.P.A. Heavy Manufacturing / Italy Unsolicited Rating without participation ISSUER RATING Long Term OUTLOOK BBB POSITIVE RATING RATIONALE FINANCIAL SUMMARY FY 2014 FY 2015 FY 2016 Revenue (EURm) 2,762 2,854 3,105 EBITDA (EURm) Net Interests (+/-) (EURm) 6 (7) (24) Net Result (EURm) Net Debt (EURm) (567) 1,938 1,390 EBITDA margin (%) EBIT margin (%) Net Debt/Equity (x) n.m. n.m. 4.2 Net Debt/EBITDA (x) n.m EBITDA/Net Interests (x) n.m Industrial Net Debt/EBITDA (x) (2.1) ANALYSTS Salvatore De Iaco, Associate Corporate Ratings Tel.: s.deiaco@crif.com Christian De Rose, Rating Analyst Corporate Ratings Tel.: c.derose@crif.com CRIF Ratings ( CRIF ) has affirmed Ferrari S.p.A. ( Ferrari ) Long Term Issuer Rating at BBB (Unsolicited) and at the same time has changed the Outlook to Positive from Stable. The rating analysis has been performed on Ferrari s consolidated perimeter ( the Group ) including the parent company Ferrari NV ( FNV ). Ferrari s rating is supported by a unique business profile and the favorable market dynamics of the luxury performance cars segment, which benefits from higher resilience and profitability compared to the mass automotive industry. In FY16 the Group maintained a conservative financial profile and reduced its EBITDA Net Leverage ratio to 1.6x from 2.6x at YE15 on a consolidated basis, and to 1.0x from 1.6x on an industrial basis (excluding the contribution of captive finance activities, as adjusted by CRIF Ratings). Ferrari is a global leading manufacturer of luxury performance cars, with 8,014 cars sold and a consolidated turnover of around EUR3.1bn in FY16. The Positive Outlook is driven by the accelerated deleveraging obtained also thanks to the disposal of a majority stake in Ferrari Financial Service GmbH (the German subsidiary operating captive finance activities in Europe) to FCA Bank, combined with CRIF s expected favorable industry developments that could translate for the Group into a steady top line growth, healthy profitability and further debt reduction over the following years. Potential offsetting factors that might challenge Ferrari s growth are the risk of increasing protectionism and the introduction of more stringent emission standards in selected countries. Ferrari s financial profile is coherent with the investment grade rating and is supported by the combination of strong credit metrics, satisfactory and predictable free cash flow generation and a solid liquidity profile. During FY16 the Group made voluntary prepayments of the existing term loan for a total consideration of EUR600m (EUR800m outstanding at YE16). This contributed to improving the Group s debt maturity profile, with total maturities decreased to EUR878m in FY17- FY18, comfortably manageable thanks to available liquidity of almost EUR1bn at YE16 (including the undrawn RCF) and the expected positive FCF generation. Ferrari s business profile is solid and underpinned by its strong competitive positioning, high brand awareness and satisfactory geographical diversification. Compared to its peers, these business strengths translate for Ferrari into superior revenue stability and profitability, with an EBITDA margin steadily above 25% despite significant R&D expenses. The rating is somehow constrained by the limited range of products compared to larger car manufacturers and the short track record of a truly independently managed group from an industrial and financial perspective, following the separation from FCA completed between 3Q15 and January FNV was incorporated in 2015 to execute the spin-off of Ferrari S.p.A. from FCA group and it has been subsequently listed on NY and Milan stock exchanges. In light of FNV s 100% ownership and financial linkages with Ferrari S.p.A., which is the main operating company of the Group, CRIF considers the consolidated perimeter of Ferrari NV as a single entity from a credit rating perspective. FNV holds the majority of the consolidated debt and has full access to Ferrari S.p.A. s cash flows which are the primary source of debt repayment. In addition FNV benefits from intercompany loans granted by Ferrari S.p.A.. Reproduction is prohibited 1/7 12 April 2017

2 KEY RATING FACTORS Revenues and margins trend % % % % % % 0 0% FY 2014 FY 2015 FY 2016 Others * Sponsorhip, commercial and brand Engines Cars and spare parts Revenues growth rate (%) (dx axis) EBITDA margin (%) (dx axis) * Mainly include captive finance activities and management of Mugello racetrack Data in EURm. Source: Ferrari NV consolidated financial statements Revenues trend by geographies FY 2014 FY 2015 FY 2016 Italy Rest of EMEA Americas Greater China Rest of APAC Data in EURm. Source: Ferrari NV consolidated financial statements Investment grade credit metrics and expected deleverage: thanks to a sound free cash flow generation and to the deconsolidation of the German subsidiary operating the captive finance business in Europe, at YE16 the Group reported a significant decrease of Net Debt, which resulted of EUR1.39bn compared to EUR1.92bn at YE15. As a result, the deleverage trend was faster than what anticipated by CRIF: EBITDA Net Leverage at YE16 was down to 1.6x on a reported basis and to 1.0x on an industrial basis (respectively from 2.6x and 1.6x at YE15). In addition, despite higher net interests charges in FY16 (up to EUR24m from EUR7m), FFO Interest Coverage ratio remained strong at 27.8x. In FY16 Ferrari made voluntary prepayments of the existing term loan for a total consideration of EUR600m (EUR800m outstanding at YE16). This contributed to improve the Group s debt maturity profile, with total maturities in FY17-FY18 decreased to EUR878m from EUR947m before such prepayments, overall comfortably manageable thanks to available liquidity of almost EUR1bn at YE16 (including the undrawn RCF) and expected positive free cash flows. CRIF considers the financial structure and ratios to be consistent with an investment grade rating. CRIF envisages that the Group will continue to post positive free cash flows well above EUR150m p.a. after dividends, bringing down the EBITDA Net Leverage below 1.5x and 1x by YE17 respectively on a reported and on an industrial basis, while FFO Interest Coverage is expected to remain on average above 30x. The disposal of the captive finance business in Europe follows the change of the banking and financial regulation in Italy, which increased the running cost of this activity. CRIF believes the exit of this business will not have a significant impact on Ferrari s revenues, EBITDA or working capital, while the Group could focus more on the industrial activities. The current portfolio of financial receivables relates mainly to USA clients, where the local subsidiary can access a securitization program as source of self-financing, therefore CRIF does not expect further disposal of captive finance assets. Resilient demand and industry trend: the luxury car market is characterized by a more resilient demand pattern compared to the mass car market, due the steadily growing customer base represented by High Net Worth Individuals (HNWI). In period, the HNWI population increased with a CAGR of 7.7% thanks to both the economic recovery in mature markets and a growing population in emerging markets. According to Capgemini, global HNWI wealth is expected to surpass USD70 trillion by 2017, fueled by expectations of a generally improved global economy. During the last decade, the luxury car market significantly outperformed the mass car market, promptly recovering from the 2009 downturn and posting an overall CAGR of 4%. The luxury performance cars niche is expected to keep growing at a low to mid-single digit rate in the medium term, thanks to recovering economies in mature markets and increasing demand from emerging countries, especially China. However, CRIF notes that future demand from the emerging countries could be adversely affected by macroeconomic volatility and currency fluctuations. Competition within the industry is becoming more intense as many players are investing in R&D, promotional activities and race competitions, in order to expand product portfolio and increase the appeal of the brand. Key drivers for future growth include power efficiency and reduced carbon footprint: indeed, players should be prepared not only to accomplish customers demand, but also to possible changes in environmental regulation, which is becoming stricter worldwide. Reproduction is prohibited 2/7 12 April 2017

3 Strong competitive positioning and geographical diversification: Ferrari competes in a small niche of the wider performance car market, worth approximately EUR10bn, represented by models with power of more than 500hp, innovative design and prices in excess of EUR150,000. In this segment, characterized by a limited number of players due to high barriers to entry, Ferrari holds a leading position with a global market share slightly above 20%. The Group s geographical diversification is satisfactory, with the EMEA region accounting for c. 55% of FY16 s net revenues. Another 27% of revenues originates from the Americas and the remaining 18% from the APAC region. The Group benefits from the status of Small Volume Manufacturer applicable in Europe and USA to companies that produce less than 10,000 vehicles per year, allowing to operate in derogation from the existing carbon emission requirement. Despite this, CRIF highlights the risk that the Ferrari s revenues could be influenced by the protectionism policies that some countries (such as USA) are evaluating, and from stricter emission standards of other countries (China, Canada among others). The strong competitive positioning is supported by a solid brand awareness, as witnessed by the 2017 award for the most powerful automotive brand worldwide. Ferrari s competitive positioning is also underpinned by the satisfactory range of car models, heavy investments in R&D activities (above 20% of total revenues) and the participation to the Formula 1 World Championship. These features, together with a capped annual production, allow a premium price strategy that leads to higher operating margins compared to its direct competitors. The Group also leverages on its technical skills and its brand as a source of diversification that contribute to offsetting sales volatility linked to the cars and spare parts business line. In FY16, the contribution of the other business lines accounted for around 30% of consolidated revenues, up from 27% in FY15. Ferrari relies on two production facilities in Italy: Maranello, where the Group concentrates engines handcrafting and cars assembly operations, and Modena, where car chassis are manufactured. According to CRIF, this does not prevent Ferrari to achieve an investment grade rating as this is a common feature among small volume car manufacturers: capping the annual production at low volume levels makes it uneconomic to set up additional production sites because of lack of economies of scale; furthermore, having a historical factory contributes to increase the exclusivity of cars sold, which is a key strategic factor within the luxury cars market. Conservative financial policy and adequate corporate governance: consistently with the investment grade profile, the Group has a conservative financial policy as witnessed by sustainable dividend policy and remuneration of the Board of Directors ( BoD ), and by a low leverage. Dividend pay-out ratio was c. 36% in FY16 and Ferrari is committed to maintain a pay-out in the 25%-40% range. This allows the Group to maintain, in CRIF views, adequate financial flexibility in a capital intensive industry. The two largest shareholders Exor NV and Piero Ferrari hold respectively 33.4% and 15.4% of the voting rights (by virtue of the loyalty voting mechanism) granting the Group a stable shareholders base. In addition, the BoD composition shows a satisfactory degree of independence and gender diversity and possess a strong mix of technical skills, industry know how and financial expertise. Overall, CRIF deems the Group s corporate governance and shareholding structure to be adequate to its size and complexity and supportive to the Group s long term strategy. However, Ferrari has still a short track record of truly independently managed group from an industrial and financial perspective. Notwithstanding the separation from the FCA group completed between 3Q15 and January 2016, CRIF highlights some linkages still in place between Ferrari and FCA: i) the sale of engines to Maserati, based on a multi-year contract expiring in 2021, accounting for almost 10% of Ferrari s consolidated revenues; ii) the Reproduction is prohibited 3/7 12 April 2017

4 partnership with FCA Bank regarding client financing activities in Europe; iii) the interlocking directorship of Mr. Marchionne, Chairman and CEO of FNV, who is also CEO of the FCA group and serves as non-executive director in Exor s BoD. In CRIF s view, such linkages are not likely to have a material impact on Ferrari s credit profile albeit somehow affects the Group s independence. CRIF deems that possible changes in shareholders equilibrium (in terms of exercise of dominant influence over the shareholders meeting and power to appoint BoD members) are not likely to occur in the short term, also considering the fact that the loyalty voting mechanism will be applicable for the new shareholders only three years after they have requested it. RATING SENSITIVITIES Future events that may positively affect Ferrari s rating include the following: Consolidated Net Debt/EBITDA < 2x on a sustained basis; Industrial Net Debt/EBITDA < 1x on a sustained basis; Future events that may negatively affect Ferrari s rating include the following: EBITDA margin < 25% on a sustained basis; FFO Interest Coverage < 10x on a sustained basis; Consolidated Net Debt/EBITDA > 3x on a sustained basis; Industrial Net Debt/EBITDA > 2x on a sustained basis. LIQUIDITY PROFILE Ferrari s liquidity profile is strong. At YE16, the Group had cash on balance of EUR458m, including EUR48m held in China subject to repatriation restrictions and EUR19m pledged as collateral related to the USD revolving securitization program started in About 70% of cash on balance is denominated in Euro (EUR318m), while the rest is in Chinese Yuan (EUR58m) Japanese Yen (EUR37m) and other currencies. The cash is available mostly to Ferrari S.p.A. level. The Group has also a committed RCF of EUR0.5bn maturing at end 2020, entirely undrawn at YE16. Compared to the previous year, total available liquidity increased to EUR958m (c. +130m y-o-y) while the debt maturity profile has improved thanks to the EUR600m voluntary prepayments of the Term Loan made in FY16, which reduced the Group s refinancing risk. Indeed, also considering the expected positive free cash flows generation after dividends, the Group has already covered its financing needs for the next 24 months. Furthermore, the liquidity of Ferrari benefits from a good access to capital markets: in FY16 the Group started a USD-denominated securitization program aimed at funding the captive finance activity and further reducing dependency on bank debt. COMPANY PROFILE The company was founded in the late 30 s by Enzo Ferrari. In 1947, the first Ferrari model was produced in the historical production facility in Maranello (Italy), still active today. In 1960, Ferrari became a limited company and in 1969 its shareholder reached an agreement with FIAT to sell 50% of the company s shares. In the 80 s FIAT increased its stake to 90% with the remaining 10% staying in the hands of the founder s son, Piero Ferrari. The whole Ferrari S.p.A. share capital is now owned by the Dutch holding Ferrari NV. After the spin-off from FCA (successor of FIAT) completed in 2016, the shareholder base of FNV includes the investment holding Exor NV with a 23.5% stake and 33.4% voting rights (Exor also owns 29% of the FCA group) and Piero Ferrari (current Vice Chairman) with a 10% stake and 15.4% voting right. These two shareholders have entered into a shareholders agreement expiring in As of April 10, 2017, Ferrari NV s market cap was equal to EUR13.6bn. Reproduction is prohibited 4/7 12 April 2017

5 The name of the company is closely associated with its racing team, Scuderia Ferrari, which is the most successful team in Formula 1 history. Nowadays Ferrari is among the world s leading luxury brands, its cars are sold in over 60 markets worldwide through a network of 170 authorized dealers operating 188 points of sale. Consolidated turnover amounted to EUR3.1bn in FY16 and the Group employed approx. 3,000 employees. RECENT EVENTS In November 2016 (following an agreement signed in May), FCA Bank acquired the 51% of Ferrari Financial Services GmbH ( FFS GmbH ) for a total purchase price of EUR18.6m. As a result of the transaction, FFS and FCA Bank will continue the operations of FFS GmbH as shareholders, supporting the sales of Ferrari cars in Germany, UK and Switzerland and certain other European countries by offering innovative vehicle financing solutions to Ferrari customers. The funding of FFS GmbH has been provided by FCA Bank, which is also the consolidating entity. In light of the partnership with FCA Bank and JACCS (a Japanese counterparty) current client financing mainly relates to activities in the United States. In addition, during 2016, in addition, the Group discontinued the factoring activity related to the purchase of trade receivables from the FCA group. On February 22, 2017, the Group received approximately USD11.4m in cash (including USD2.7m of previously undistributed dividends), 145 thousand Liberty Media shares and USD911k of Liberty Media exchangeable notes in relation to the Delta Topco option. The Group had previously exercised the Delta Topco option as a result of the sale of Delta Topco (a company belonging to the Formula 1 Group) to Liberty Media Corporation, which was completed on January 23, On March 1, 2017, the Board of Directors approved a distribution to the holders of common shares of EUR0.635 per common share, corresponding to a total distribution to shareholders of approximately EUR120m. Reproduction is prohibited 5/7 12 April 2017

6 FINANCIALS PROFIT&LOSS (EURm) FY 2014 FY 2015 FY 2016 REVENUE 2,762 2,854 3,105 % Increase 18.3% 3.3% 8.8% EBITDA % incidence on sales 25.1% 26.2% 28.3% EBIT % incidence on sales 14.6% 16.6% 20.4% Net interests (+/-) 6 (7) (24) NET RESULT SOURCES AND USES (EURm) FY 2014 FY 2015 FY 2016 Trade working capital (276) (248) (277) Tangible and Intangible net fixed assets 1,673 1,721 1,809 Financial assets 1,236 1, Other assets / (liabilities) (600) (619) (436) Assets / (liabilities) held for sale (Provisions) (121) (121) (200) NET INVESTED CAPITAL 1,912 1,919 1,720 - Non current financial debt 19 1,341 1,448 - Short term financial debt (Cash & equivalents) (1,077) (322) (458) Net Debt (567) 1,938 1,390 Total Equity 2,478 (19) 330 TOTAL SOURCES 1,912 1,919 1,720 CASH FLOWS (EURm) FY 2014 FY 2015 FY 2016 FUNDS FROM OPERATIONS (FFO) (Increase)/Decrease in trade working capital (-/+) (253) OPERATING CASH FLOW (OCF) ,035 Tangible and intangible capex (-) (330) (356) (342) FREE OPERATING CASH FLOW (FOCF) Dividends paid (-) (15) (54) (104) FREE CASH FLOW (FCF) (INCREASE)/DECREASE OF NET DEBT 86 (2,505) 548 ADJUSTED FIGURES (EURm) * FY 2014 FY 2015 FY 2016 Industrial Revenues 2,717 2,793 3,047 Industrial EBITDA Industrial FFO Industrial FCF Industrial Net Debt (1,415) 1, Short term debt strictly related to industrial activities Available cash (not subject to repatriation restrictions) 1, KEY CREDIT METRICS FY 2014 FY 2015 FY 2016 Coverage EBITDA/Net Interests (x) n.m (FFO + Net interests + Pref Div)/(Net Interests + Pref Div)(x) n.m Leverage Gross Debt/(FFO + Interests + Pref Div) (x) Net Debt/(FFO + Interests + Pref Div) (x) n.m Gross Debt/EBITDA (x) Net Debt/EBITDA (x) n.m Gearing Net Debt/Equity (x) n.m. n.m Net Debt/Total Sources (%) n.m % 80.8% Liquidity Cash/Short Term Financial Debt (%) 219.2% 35.0% 114.5% (Cash + Undrawn Credit Lines)/Short Term Financial Debt (%) 219.2% 89.4% 239.5% FCF/Short Term Financial Debt (%) 16.7% 36.6% 140.6% Adjusted ratios * Net Industrial Debt / Industrial EBITDA (x) (2.1) Available Cash / Industrial Short Term Financial Debt (%) 228.8% 23.7% 171.8% (Available Cash + Undrawn Credit Lines) / Industrial Short Term Financial Debt (%) 228.8% 78.7% 391.7% Industrial FCF / Industrial Short Term Financial Debt (%) 19.1% 19.5% 53.1% Source: Ferrari NV consolidated financial statements and CRIF adjustments * Obtained by carving out the contribution of captive finance activities Reproduction is prohibited 6/7 12 April 2017

7 REGULATORY AND LEGAL DISCLOSURES Information to be provided pursuant to Regulation (EC) No. 1060/2009 on Credit Rating Agencies and subsequent amendments Credit Rating Type The rating was not solicited by the Rated Entity or by a Related Third Party, and so CRIF Ratings did not receive payment. The Rated Entity or Related Third Party did not participate in the rating process and CRIF Ratings did not have access to internal documents of the Rated Entity or related Third Party. Responsibilities CRIF Ratings is a business unit of CRIF S.p.A. with registered office at Via M. Fantin 1/3, Bologna (Italy) Lead Analyst: Salvatore De Iaco, Associate Corporate Ratings Responsible for rating approval: Francesca Fraulo, Rating Committee Chairperson Rating history Date of first issue 11/05/2016 Date of last update 12/04/2017 List of rating actions ( Methodology, rating category and historic default rates Disclosure of the rating to the Rated Entity prior to communication Conflicts of Interest Information sources consulted Methodological information used for the rating, including the meaning of the each rating category and default definition, are available in the Corporate Rating Methodology document ( Information concerning historic default rates and their interpretation can be consulted on the CEREP website ( CRIF Ratings states that the Outlook indicates the most probable direction of the rating over a time horizon of months. Before communication, the Rated Entity has been provided with an opportunity to examine the rating and rating drivers, including the main assumptions on which the rating or rating outlook are based. The Rated Entity was given at least one full working day to report any material errors or appeal against the rating decision, providing additional new information in support of the assessment. Following the disclosure, the rating or rating outlook were not amended. The rating action issued by CRIF Ratings was performed independently. On the basis of its procedures, CRIF Ratings has not identified any conflicts of interest. The analysts, members of the rating committee involved in the process, and CRIF S.p.A. shareholders do not have any conflicts of interest in relation to the Rated Entity or related Third Party. If in the future a potential conflict of interest is identified in relation to the subjects reported above, CRIF Ratings will provide the appropriate information and if necessary will withdraw the rating. Ferrari NV s consolidated financial statements, Ferrari s corporate website and other publicly available information. CRIF Ratings considers satisfactory the quality of the available information on the Rated Entity. However, CRIF Ratings is not responsible for the accuracy of this information and does not carry out any audit activities on the information examined. Ancillary services provided by CRIF Ratings The Rated Entity or related Third Party has not received ancillary services from CRIF Ratings as described on the Agency website. DISCLAIMER The rating is the opinion provided by CRIF Ratings on the creditworthiness of the Rated Entity and does not necessarily predict future results. Rating reports, rating actions and other relevant information are provided on an as is basis, without any guarantee of any type. CRIF Ratings adopts all necessary measures to publish a rating based on information that CRIF Ratings considers to be complete and reliable. However, CRIF Ratings is not responsible for the accuracy of the information used to assign the rating or perform the rating actions and does not carry out any auditing activities on this information. The rating actions are executed on the basis of methodological guidelines defined by CRIF Ratings. CRIF Ratings reserves the right to update or withdraw the ratings at any time, pursuant to methodologies and internal processes. Ratings do not constitute a recommendation to buy, sell or hold securities or other financial instruments issued by the rated entity. The ratings issued by CRIF Ratings are not a substitute for the exercise of independent judgment and personal assessment that must be performed by any third party. Under no circumstances shall CRIF Ratings, its employees, officers, directors and persons involved in its rating activities be liable to any party for any direct or indirect, consequential or incidental damage and/or costs arising from or in connection with the usage of ratings issued by CRIF Ratings. For the purpose of transferring, dissemination, reselling, storing or any other use of the information herein, please contact CRIF Ratings, Via M. Fantin 1/3, Bologna, Italy. Reproduction is prohibited 7/7 12 April 2017