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

DBRS Limited (DBRS) has today 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 (OEM) 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 and financial profile, with Renault’s automotive operations having a material net cash position and credit metrics being well commensurate with the assigned ratings.

The Company’s earnings performance in 2014 through H1 2015 has been progressively improving, reflecting ongoing cost cutting efforts in addition to meaningful volume increases in Europe, partly offset by aggregate volume declines across Renault’s other international territories (in line with meaningful headwinds in certain emerging markets). While Europe remains a core market, the Company’s sales footprint has been considerably further diversified by geography, with Renault’s international (i.e., outside Europe) sales representing 46% of total sales in 2014, compared with 34% in 2009.

DBRS notes that Renault is currently undergoing a significant product offensive. Forthcoming launches include next generation versions of key models such as the Renault Mégane and Scénic. Moreover, the Company will also increase its representation across vehicle segments through new offerings in the crossover utility vehicle segment in addition to an international roll out of its light commercial vehicles. Going forward, DBRS anticipates that Renault’s financial performance will be subject to further increases given improving conditions in Europe, bolstered by anticipated gains in share (that also incorporate the significant momentum of the entry level Dacia brand) and firmer pricing in line with the above-cited product launches. Moreover, the Company is expected to achieve further benefits from cost cutting, primarily through the joint efforts of the Alliance, which continues to generate record levels of synergies that in 2014 amounted to EUR 3.8 billion. Finally, while Renault is quite highly exposed to diesel engines (as is the entire European auto industry), DBRS currently does not expect the Company to be significantly adversely affected by the (diesel) vehicle emissions controversy, (although it remains rather early to reliably anticipate the long-term impact of the diesel controversy).

DBRS expects Renault’s ratings to remain constant over the near to medium term as earnings performance will likely benefit from improving conditions in Europe, which should help offset ongoing headwinds across some of the Company’s other international markets, notably the Americas and Russia, supported by the Company’s ongoing cost-reduction efforts.

Notes:
The applicable methodology is Rating Companies in the Automotive Manufacturing Industry, 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.