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Fitch upgrades Volvo, outlook stable

Fitch Ratings upgraded the long-term issuer default ratings and senior unsecured rating of AB Volvo to BBB+ from BBB, while maintaining its stable outlook.

The rating agency cited the company's continued improvement in leverage and profitability, complemented by Fitch's expectations that the truck maker would be able to maintain its cost efficiencies and that its EBIT margin would remain over 7%.

Successful completion of the 2013-2015 restructuring program led to improved profitability and operational efficiency, affirming Fitch's view that the company can maintain an improved industrial profitability margin on the back of a better product mix and an improving medium-term outlook for the industry.

The rating agency expects FFO net leverage to be lower than 1x through the period despite working capital requirements continuing to rise due to higher dividend payout ratios and strong order growth. Volvo's industrial FFO net leverage has fallen over the past two years, despite growing working capital requirements led by bottlenecks in the production process.

Fitch said that agricultural equipment and truck manufacturers face political risks, such as global emissions rules. The rating agency believes that the company will be able to manage potential fines and penalties within the existing rating level.