RPH draft presentation istanbul 2010 B - tuyid.org€¦ · Microsoft PowerPoint - RPH draft...

Raymond HillHead Of Emerging Markets, Corporates

Forecasting EMEA Corporates Recovery: The Slow Haul Back

Istanbul, March 2010

Agenda:Overview and ContextExpectations for 2010 and Beyond Fitch’s New Credit Update Report FormatFitch’s New Credit Update Report FormatQ&A


3

Overview

Expectations for 2010 and Beyond

> Anaemic growth in 2010 after 2009 low point

> Growth dependent on private sector and consumer recovery

> Corporate liquidity aided by 2009’s exuberant bond market and impaired banks rolling existing exposures at higher cost

> Companies have conserved cash

– some equity issuance, cancel share buybacks, reduce capex, some reduce dividend, working capital management

> Management action

> Less fall in profit v. turnover decline as companies cut costs

4

Overview (cont.)

> All credit ratings and outlooks based on our independent forecasts

– Forecasting the downturn and ‘exit point’

> By FY11e some sectors yet to recover to FY07’s absolute profit levels

5

Oil Price Dynamics - WTI

0

20

40

60

80

100

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Historic Fitch BC Price Deck - oldFitch BC Price Deck - new

(USD/bbl)

Source: Bloomberg, Fitch

6

Oil Consumption Recovery Expected in 2010

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

OECD Non-OECD Asia FSU and EasternEurope

Other (Latam &Africa)

(bpd m) 2008 2009 E 2010 E

World Oil Consumption Growth – Change From Previous Year

Source: EIA short-term energy outlook, October 2009

2008 = net decrease of 470k bpd

2009 = net decrease of 1.8m bpd (IEA -1.7m bpd)

2010 = net increase of 1.1m bpd (IEA +1.4m bpd)

7

Industrial

9101112131415161718

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Est

.

2010

Est

.

U.S. EU(units m)

US Light Vehicle Sales & Western Europe New Passenger Car Registrations (m)

Source: US – Wards. EU – ACEA. 2009 & 2010 E - Fitch

8

0

2,000

4,000

6,000

8,000

10,000

2/1/97 2/12/99 2/11/02 2/10/05 2/9/080

200,000

400,000

600,000

800,000

1,000,000

1,200,000

USD/tonne (LHS) Stocks/tonnes (RHS)

Metals & Mining Steel Price Evolution

Copper Prices & Stocks

Steel Production Evolution

Aluminium Price & Stocks

300

500

700

900

1,100

1,300

8/1/07 8/11/07 8/9/08 8/7/09

Mainland China Hot Rolled Coil (HRC)Western Europe HRC World Export Market HRC (USD/tonne)

5,000

15,000

25,000

35,000

45,000

55,000

Jun-

07

Dec-07

Jun-

08

Dec-08

Jun-

09

Nov-09

EU27 Russia & Ukraine China (Tonne)

(USD/tonne) (Stocks/tonne)

0

2,000

4,000

6,000

8,000

2/1/97 2/12/99 2/11/02 2/10/05 2/9/080

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

LHS USD/tonne RHS Stocks - tonnes(USD/tonne) (Stocks/tonne)

Source: LME Source: LME

Source: Metal Bulletin Source: Metal Bulletin

9

Advertising Spend Downturn:2009 – Eye of the Storm?

-20

-10

0

10

20

30

05 vs. 06 06 vs. 07 07 vs. 08 08 vs. 09 09 vs. 10 10 vs. 11

North America W. Europe Asia Pac C&E Europe(%)

Year-on-Year Ad Growth

Source: Zenith 1 2 3 4

10

Semiconductors: 2010 – Improved spending?

Source: SEAJ

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Dec 07 Apr 08 Aug 08 Dec 08 Apr 09 Aug 09

US Japan

1 2 3 4

11

RLCP

Like-for-like (LFL) Sales

-2.4-4.0-2.8-2.9-1.20.0-1.51.12.32.75.1Total France LFLKingfisher

200920082007

3.9

-0.8

-1.3

0.0

2.8

4.6

-4.4

-4.2

Q3

-1.20.9-6.8-9.2-1.7-7.9-1.9-0.5-1.55.5Total UK LFL

Non-Food

-4.0-7.05.0Total Group LFLDSG

1.6-1.2-2.3-6.1-4.4-2.4-9.4-3.2-2.9-3.6-2.7Next Retail LFL (excl Directory)Next

1.2-2.4-4.8-8.9-6.4-6.2-3.1-3.21.72.94.6GM only LFLM&S

0.4-0.5-3.7-5.2-5.9-4.5-0.5-1.50.50.73.0Food only LFLM&S

Apparel

3.77.06.24.54.33.44.13.73.17.15.9LFL excl PetrolSainsbury

5.13.14.33.52.04.03.53.14.12.44.7LFL excl PetrolTesco

France growth incl. Petrol

France LFL incl. VAT & Petrol

1.5

-0.4

Q1

0.9

0.0

Q2

-0.3

-2.4

Q3

5.0

4.0

Q4

5.3

2.7

Q1

4.2

0.8

Q2

5.3

3.2

Q3

0.1

-2.4

Q4

-3.9

-2.7

Q2

-4.5Casino

Q4Q1

-5.0Carrefour

Food

Note: LFL numbers are aligned into "Calendar" quarters as much as possible. Source: Fitch Ratings from company statements

Key: LFL > +5% LFL > 0% to +5% LFL -5% to 0% LFL > -5%

Agenda:Overview and ContextExpectations for 2010 and BeyondFitch’s New Credit Update Report FormatFitch’s New Credit Update Report FormatQ&A


13

Fitch Forecasts 2009 to 2011

-30

-20

-10

0

10

20

30

Au

to

Tec

h

Bui

ld m

ats

Che

mic

als

Nat

reso

urce

s

Oil

& g

as

Med

ia

Oth

erm

anu

f.

Tel

co

Ret

ail

Hea

lthca

re

Tra

nspo

rt

Con

sum

er

FB

T

(%) EBITDA Revenue

Sub-Sectors by Cumulative EBITDA Movement 2007 A – 2011 E

Source: Forecasting EMEA Corporates' Recovery, December 2009

14

0.00.51.01.52.02.53.03.5

Med

ia

Bui

ld. M

at.

Ret

ail

Util

ities

Tel

co

Nat

. Res

.

FB

T

Che

mic

als

Aut

o

Con

sum

er

Oil

& G

as

Hea

lthC

are

(x) 2007 A 2009 E 2011 E

Fitch Forecasts 2009 to 2011

Adjusted Net Debt/EBITDA Leverage Ratio

Source: Forecasting EMEA Corporates' Recovery, December 2009

15

+0.1BB+Telecommunications-0.1BBB+Utilities

-0.7BBB+Media & Entertain.Energy, Utilities & Reg

-0.4BBB-Technology-0.3BBB-Energy (Oil & Gas)

BBB+

A

BBB

BBB-

Avg Rating

TMT

Consumer

Healthcare

Food, Bev & Tobacco

Retailing

RLCP

-0.5BBBCapital Goods

-1.0

-0.6

-0.1

-0.8

Mean Notches Change

-0.6BB+Chemicals

BB

BB+

BBB-

Avg Rating

-1.2Natural Resources

Mean Notches ChangeIndustrials

-1.7Building Mats & Construct

-2.3Auto & Related

Severity of Downgrades

Rating Movements (Dec07 - Dec09)

Source: Forecasting EMEA Corporates’s Recovery (14 December 2009)

16

0 1 2 3 4 5 6 7(Years)

Through the Cycle Profile Cycle Company A Company B

Forecasting the Downturn and Exit Point

> Rating focus on the degree to which incremental change in financial profile, or decline in business model prospects, leave an issuerfundamentally weakened by the passage through the recession

Impact of RecessionIllustrative curves (Rating through the cycle)

"Exit" point

Source: Fitch

17

-20

-15

-10

-5

0

Jan 08 May Sep Jan 09 May Sep

Downgrades Downgrade and Negative Outlook

Recent Rating Action

-20

-10

0

10

20

30

40

Jan 08 Mar 08 May 08 Jul 08 Sep 08 Nov 08 Jan 09 Mar 09 May 09 Jul 09 Sep 09 Nov 090.0

0.5

1.0

1.5

2.0Down Affirm Up Average Notches per Monthly Downgrade (RHS)

Rating Actions 2008-09

EMEA IDRs on Watch/Directional Outlook, 31 Dec 2009

Cyclical Company Downgrades, 2008-09 by Issuer, Europe and Asia

-60-50-40-30-20-10

010

Ind TMT RLCP E/U

(%)Q409 Neg Q309 Neg Q409 Pos Q309 Pos

Source: Fitch

18

StabilisationEMEA Timeline for Estimated Stabilisation of Credit Ratings vs. Stabilisation of Company Fortunes

Not including non-cyclical: Food, Beverage & Tobacco, Food Retailing, Telecoms, Aerospace &Defence, Healthcare, and UtilitiesSource: Stabilising Corporate Ratings in Europe and Asia Pacific (Oct 2009)

Longer-term

Nearer-term

Q411Q311Q211Q111Q410Q310Q210Q110Timing of recovery

Start period for move from negative bias. Sector should show first sustainable evidence of reaching its (potentially altered) rating profile. “----” period of anticipatory Outlook stabilisation to evidence from issuer

--------------Building Materials------------------- Mining----------

------------------------Steel-----------------------

-------------------------Construction--------------------------

---------Technology-----------

------------------------------Capital Goods----------------------------------------------------------Non-food Retail------------------------------------

-------------Media---------------

-------------------------------------Shipping------------------------------------Airlines---------

----------------------------------------------------UK Homebuilding-----------------------------------------------------------------------Automotive----------------------------------------------

----------Oil E&P-------------------------------Oil Refining------------------------------------

------------------Chemicals--------------------

Consumer RecoveryGov’t StimulusPrivate Investment

19

Corporate Liquidity

> Do corporates have enough RCFs?

> Health of banks

> Refinance Risk

> Annual Liquidity Study

> Each sub-sector: Liquidity reports

20

Corporate Liquidity (cont.)

0

20,000

40,000

60,000

80,000(USDm)

Yr 1 FCF Yr -1 cash & equiv.Yr 1 undrawn committed facilities Yr 1 term maturitiesYr +1 committed capex Yr's Total LiquidityShaded (UK prior year's study)

2009 2010 2011

Source: Corporate Liquidity Study, September 2009

> Developed market companies – sufficient liquidity through 2011– External liquidity: Sufficient 3-5 yr committed Revolving Credit Facilities (RCFs), retained

cash, accessed the bond market

‘BBB’ and Below (UK)UK prior study and UK total

21

-30,000

0

30,000

60,000

90,000

120,000(USDm)

Yr 1 FCF Y-1 Cash & EquivYr 1 undrawn committed facilities Yr 1 term maturitiesYr +1 committed capex Yr's Total LiquidityShaded (Russia without Oil Majors)

2009 2010 2011

Corporate Liquidity (cont.)> Emerging market companies – Insufficient liquidity (1-2 years horizon)

– Short-term debt, less sophisticated markets, lack of disclosure, concept of committed available lines is less prevalent

‘BBB’ and Below (Russia)Russia without oil majors and Russia total

Source: Corporate Liquidity Study, September 2009

22

Ass

et E

nvi

ron

men

t Oil & Gas

Telecom, TransportAero/Defence

Food & Beverage

UtilitiesTobacco

Auto & RelatedBuilding Materials/Construct

ChemicalsConsumer Goods, Retailing

Media & Entertainment

–

+

2009 Outlook – EMEA CorporatesRating Environment a

– +

Commercial Property Pharma

a Defined as more than 20% of ratings in a sector being on directional watch or outlookSource: Fitch

23

Ass

et E

nvi

ron

men

t Oil & Gas

Telecom, TransportAero/Defence

Food & BeverageUtilities, Tobacco

Building Materials

Consumer Goods

Auto & RelatedConstructionChemicalsRetailing

Media & Entertainment

–

+

2010 Outlook – EMEA CorporatesRating Environment a

– +

Commercial Property Pharma

Red: Sector average rating for the sub-sector around 1 or more rating notch lower compared with

beginning 2008a Defined as more than 20% of ratings in a sector being on directional watch or outlookSource: Fitch

Agenda:Overview and ContextExpectations for 2010 and BeyondFitch’s New Credit Update Report FormatFitch’s New Special Credit Factor ReportsQ&A


25

Objectives

> Continue to provide research which states clearly:

– Rating rationale

– Potential triggers of rating movements

> Provide issuers and investors with a deeper understanding of therating using:

– Peer analysis

– Comparison of key financial and credit metrics against sector and rating medians

– Forward-looking data

> Improve frequency of output

26

Front Page

Front page unchanged from current version except more focus on what could move even a stable rating

Note: The draft report presented here is intended to be for illustrative purposes only

27

Peer group analysis to allow users to understand our overall view of a sector, and how an issuer measures up compared to its closest peers

Page 2: Peer Analysis

28

Snapshot profile of key credit considerations vspeers

Page 2: Peer Analysis

29

Page 3: Context and Direction

Make clear to issuers and investors:

•How the issuer compares to a broader peer group based on sector/rating

•What expectations we are building into the rating

30

Page 3: Context and Direction

•Key financial and operational metrics

•Historical and prospective comparisons against sector and rating medians

•Prospective cashflow-based ratios based on Fitch internal forecasts, to provide an indication of expected trend

•Context and key assumptions explained

Agenda:Overview and ContextExpectations for 2010 and BeyondFitch’s New Credit Update Report Format Fitch’s New Special Credit Factor ReportsQ&A


32

Criteria Reports

Master Criteria: Corporate Rating Methodology

(November 2009)

33

Sector-Specific Criteria Reports

New Sector Specific Criteria Reports to be structured as assessment of

1. Sector Risk Profile – Recognises inherent traits or limitations of the sector. Also indicates

parameters, rating categories, within which representative companies operate.

2. Company Specific Traits– Company traits narrow down range within, or potential for position outside,

the Sector Risk Profile.

3. Financial Profile– Financial profile, specific measures, help narrow down to rating level.

4. Other Factors (some overriding) associated with that sector– Country Ceiling, Economic Regulation, Gov’t Support.

34

Telecoms SCF

Source: Fitch

Smaller incumbents and strong market challengers20%-40%

Market challenger15%-20%

Market challenger<15% market share

Sector Risk Profile Financial Profile (Historical where relevant and forecast, mid-points) Company-Specific Traits

European Telecoms

General (to all rating levels)• Essential service• Broadly constant demand• Technology risk• Regulated licenses and

tariffs• Benefits from economies of

scale

Negative-2c. 1535.05.0

Single geography

Limited by scale to upgrade

• Single platform and may not have ownership

B

0-7c. 2044.04.0Single geography

Selective network upgrades

• Ownership often limited to single platform

• Cable TV and altnetsBB

10c. 3063.0

Limited to one or two geographies.Smaller incumbents

Slower rollout of technology upgrades

• Ownership can be limited to single platform

• Incumbent operators

BBB

15c. 3582.02.5

Operates in a number of markets.Large multi-jurisdictional operators

Deploying latest network upgrades (FTTH/FttC) + 4g

• Operates and owns both fixed and mobile platforms

Dominant market positions>40% + no. 1 or no. 2 market position

A

Pre div FCF/ sales (%)

Op. EBITDAR margin (%)

FFO int. cover (x)

FFO adj. net leverage (x)FFO adj. leverage (x)

Geographical diversification & absolute scale

Technology leadership

Integrated network owner

Market share & competitive intensity

2.5

Source: Fitch





European Telecoms



scale


Single geography



B





10c. 3063.0





BBB

15c. 3582.02.5





A



FFO int. cover (x)






Source: Fitch





European Telecoms



scale


Single geography



B





10c. 3063.0





BBB

15c. 3582.02.5





A



FFO int. cover (x)






2.5

35

Example – Deutsche Telekom

Source: Fitch





European Telecoms



scale


Single geography



B





10c. 3063.0





BBB

15c. 3582.02.5





A



FFO int. cover (x)






2.5

Source: Fitch





European Telecoms



scale


Single geography



B





10c. 3063.0





BBB

15c. 3582.02.5





A



FFO int. cover (x)






Source: Fitch





European Telecoms



scale


Single geography



B





10c. 3063.0





BBB

15c. 3582.02.5





A



FFO int. cover (x)






2.5

36

Example – Virgin Media

Source: Fitch





European Telecoms



scale


Single geography



B





10c. 3063.0





BBB

15c. 3582.02.5





A



FFO int. cover (x)






2.5

Source: Fitch





European Telecoms



scale


Single geography



B





10c. 3063.0





BBB

15c. 3582.02.5





A



FFO int. cover (x)






Source: Fitch





European Telecoms



scale


Single geography



B





10c. 3063.0





BBB

15c. 3582.02.5





A



FFO int. cover (x)






2.5

Agenda:Overview and ContextExpectations for 2010 and BeyondFitch’s New Credit Update Report Format Fitch’s New Special Credit Factor ReportsQ&A


38

List of Topical Pieces published during 2009

> Refinance Risk: EMEA and Asia Pac (March 2009) Corporate Forecasts: Macro Assumptions (April 2009)

> European Corporates in 2012 (June 2009)

> Corporate Liquidity Study – EMEA and Asia-Pac (September 2009)

> The Long March – Outlook for European Leveraged Credit (Sep09)

> EMEA Corporates Capital Expenditure Update (October 2009)

> Stabilising Corporate Ratings in Europe and Asia (October 2009)

> Forecasting EMEA Corporates’ Recovery: The Slow Haul Back(December 2009)

> EMEA Emerging Markets Corporate Outlook 2010 (December 2009)

39

EMEA Corporates’ 2010 Outlooks

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