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Moody's downgrades Daimler after guidance cut


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Moody's downgrades Daimler after guidance cut

Moody's on Dec. 13 downgraded Daimler AG's long-term rating with a negative outlook.

Moody's downgraded the German automaker's long-term rating to A3 from A2 and its short-term rating to Prime 2 from Prime 1.

"The downgrade to A3 was triggered by Daimler's significantly reduced guidance for its earnings outlook for the period 2020-2022 that will be further burdened by restructuring provisions and cash needs for the planned redundancy programme over the same period," Moody's said.

Daimler said Nov. 14 that it expects the Mercedes-Benz brand to achieve a return on sales from operating activities of at least 4% in 2020 and at least 6% in 2022. EBIT margin targets for trucks and buses were reduced to at least 5% in 2020 and at least 7% in 2022.

Daimler also expects CO2 compliance rules in the EU to negatively impact its EBIT margin by 1% in 2020.

The negative outlook reflects low visibility and unpredictability about the future share of electric vehicles — including plug-in hybrids and battery electric vehicles, Moody's said, adding that electric vehicles' lower margins and a potential decline in light vehicle sales also contributed to the outlook.

The automaker also made €1.4 billion in cuts to staff costs as part of an efficiency plan, which Moody's said will result in restructuring costs and impact future cash flows and credit metrics through the end of fiscal 2021.

"It has become clear that Daimler's credit metrics will be depressed and clearly below the requirements for an A2 rating for a prolonged period of time. The efficiency measures to be implemented will result in significant upfront restructuring costs and weigh on future cash flows and credit metrics at least until the end of fiscal year 2021," the rating agency said.