Rating action

Scope Ratings today assigns a first-time corporate issuer rating of BBB to German-based Voith GmbH & Co. KGaA. The rating has a Stable Outlook. Scope also assigns an S-2 short-term rating.

Rating rationale

The issuer rating mainly reflects Scope’s view of Voith’s strong business risk profile – supported by leading market positions in hydro and paper (Voith sees itself as the market leader in the hydro industry with a market share of around 30% in FY 2016-17; as regards the paper market, Voith is a key player in the capital equipment business [new machines and major rebuilds] with a market share of around 35%), diversification with regard to end-markets and products and very strong liquidity due to EUR 1.15bn in proceeds from the sale of KUKA AG shares in 2017. Voith’s business risk profile is weakened by the company’s relatively low profitability. The company’s EBITDA margin of 7.3% in FY 2016-17 was below the previous year’s level of 8.6%. This was due to: i) higher restructuring expenses YoY; ii) higher start-up costs for Voith Digital Solutions; and iii) lower EBITDA in the Voith Turbo division as a result of reduced revenue from high-margin power and oil & gas products. Scope believes that despite considerably improved credit metrics at FY-end 2016-17, Voith’s financial risk profile is slightly weaker than its business risk profile from a ratings perspective. In particular, Scope doubts the sustainability of the recent improvement in the company’s SaD/EBITDA ratio to 1.7x at FY-end 2016-17 due to the proceeds from the disposal of shares in KUKA AG, as Voith has indicated that it intends to use its increased cash position for acquisitions. Moreover, Voith’s financial risk profile is negatively affected by reduced reported operating cash flow levels since FY 2012-13. Scope has a positive view of the company’s conservative liquidity policy reflected in: i) a high amount of available cash on the balance sheet over the last financial year (cash accounted for 9-16% of total assets); and ii) its restrained dividend policy with limited dividend payments over the past years as well as a negligible extraordinary payment following the sale of KUKA AG shares.

Rating-change drivers

• Scope-adjusted debt (SaD)/EBITDA and free cash flow/SaD sustainably below 2.0x and above 10%, respectively
   
• SaD/EBITDA increasing towards 3.0x, for instance as a consequence of a potential future acquisition for more than EUR 600m

For the detailed research report please click HERE.

Stress testing & cash flow analysis
No stress testing was performed. Scope performed its standard cash flow forecasting for the company.

Methodology
The methodology used for this rating(s) and/or rating outlook(s) Corporate Rating Methodology is available on www.scoperatings.com.
Historical default rates of Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definition of default as well as definitions of rating notations can be found in Scope’s public credit rating methodologies on www.scoperatings.com.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The rated entity and/or its agents participated in the rating process.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity, third parties and Scope internal sources. Historical data used for this rating is limited.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was amended before being issued.

Regulatory disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst Gennadij Kremer, Associate Director
Person responsible for approval of the rating: Olaf Tölke, Managing Director
The ratings/outlooks were first released by Scope on 07.05.2018.

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
© 2018 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Analysis GmbH, Scope Investor Services GmbH and Scope Risk Solutions GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstrasse 5 D-10785 Berlin.

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