[ET Net News Agency, 16 August 2019] S&P Global Ratings said today it expects Nexteer
Automotive Group Ltd. (01316)(Nexteer; BBB-/Stable/--) to keep its leverage low and
gradually improve sales and profitability starting 2020, supported by a strong order book.
The credit rating agency views Nexteer's credit profile to be stable despite weaker
financial performance in the first half of 2019. The company's revenue fell by 10% year on
year in the period. The decline was partly affected by sluggish global auto production.
Nexteer's China exposure is focused on the lower end of the mass market, which had been
particularly weak year-to-date. The loss of a steering column contract three to four years
ago due to model transition at a major customer also started to hit revenue this year.
Moreover, the U.S. dollar appreciation led to unfavorable currency translation.
S&P anticipates Nexteer's revenue will recover moderately in 2020 with stabilizing
global auto demand and the company continues to gain market share. It believes Nexteer's
strong R&D capability and proven record in product delivery can help maintain its
competitiveness in the volatile market.
Its backlog of US$25.6 billion in orders as of end-June 2019 covers more than 6x annual
sales, providing decent revenue visibility in the coming years. Nexteer's ongoing cost
reduction measures and increase in regional production autonomy should also help it
counter potential tariff and pricing challenges and deliver steady profit.
S&P thinks Nexteer will likely maintain its net cash position in the next 12-24 months.
It views the company's operating cash flow to be more than sufficient to cover a
moderately increasing capital expenditure of US$350 million-US$400 million in 2019-2020,
from about US$300 million in 2018. The company also can tolerate working capital pressure
in the next one to two years to some extent, considering possible slower accounts
receivable turnover.
S&P's current assessment of Nexteer's credit strength incorporates potential short-term
volatility in its leverage ratio due to severe but temporary distress in the global auto
market. (KL)