S&P shifts Kongsberg view to negative

S&P said it changed the outlook on Kongsberg Automotive ASA to negative from stable.

Free operating cash flow for the company this year was below what S&P had expected.

“Kongsberg reported negative FOCF of €22 million for the last 12 months ended Sept. 30, 2019 (-5.9% as a percentage of adjusted debt compared with -5.6% in 2018), compared with our expectation of positive FOCF (1%-2%). Weaker than expected FOCF mainly stems from a higher-than-expected built up of working capital and lower profitability due to unfavorable product (higher share of new products) and market mix, higher tariffs, and increased Mexican labor costs,” said S&P said in a press release.

A potentially tough auto and truck market could put added pressure on the company’s profits and free FOCF, the agency said.

In addition, the ongoing trade dispute between China and the U.S., along with risks of Brexit have hurt global trade.

“Given slightly more than 50% of Kongsberg’s products ultimately rely on the volume of new car sales, we expect Kongsberg will be negatively affected by their 2%-3% decline in 2019. We foresee virtually no growth over 2020-2021. Furthermore, about 20% of Kongsberg products are dependent on the truck industry, which has significantly slowed down over the last quarter in terms of new truck orders,” the agency said.

S&P affirmed Kongsberg’s B+ rating and BB- rating on the senior secured debt.

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