Fitch: Weak Vehicle Sales Trends in Chile and Peru to Hurt Results of Automotores Gildemeister
Fitch Ratings expects vehicle sales to decline in Peru and Chile during 2016 due to the sluggish economic conditions in both countries. Evidence of the weak backdrop includes downward revisions of GDP expectations in recent quarters, declining consumer confidence, and the sharp depreciation of both currencies against the U.S. dollar.
Fitch expects the Chilean economy to grow by 2.2% and 2.7% during 2015 and 2016, respectively, while the Peruvian economy is forecast to grow by 2.8% and 3.8%, respectively. This weakness has resulted in lower vehicle sales for both markets during the last 12 month (LTM). Fitch anticipates the trend to continue in Chile and Peru throughout 2016. Total annual average vehicle sales expected to be around 283,000 in Chile and 162,000 in Peru during 2015/2016.
Chile's vehicle sales for the LTM period ended in June 2015 totaled 303,000 units; this represents a 16% decline over the same period in 2014. Year over year (YOY) sales units reached negative variations of -31%, -27%, and -14% during the fourth quarter of 2014 (4Q14), the 1Q15 , and the 2Q15, respectively. Fitch expects Chile's total sales units to decline about 15% in 2015 after contracting 11% in 2014.
Peru's sales units for the LTM period ended in June 2015 totaled 164,000; this figure represents a 2% decline over the same period in 2014. YOY sales units reached variations of +5%, 0% and -7% during 4Q14, 1Q15, and 2Q15, respectively. Fitch's expects Peru's sales units to decline around -3% in 2015.
The aforementioned business environment will continue to pressure the financial results of Automotores Gildemeister S.A.'s (AG). This company's total revenue during the first half of 2015 (1H15) was CLP346.440 million (USD547 million), a decline of 9.7% and 23.1% in local currency and U.S. dollar, respectively, against 1H14 figures. Chile accounted for 52% of AG's revenues in 1H15, while Peru represented 45% of sales. Total revenue declined by 30% in Chile in U.S. dollar terms, while revenues in Peru fell by 14%.
On a LTM basis, AG's total sales units in Chile declined -7%, -11% and -16% in 4Q14, 1Q15 and 2Q15, respectively. Fitch's rating base case considers AG's total sales units in sales in Chile contracting around 20% in 2015. On a LTM basis, AG's total sales units in Peru decreased -13%, -11% and -11% in 4Q14, 1Q15 and 2Q15, respectively. Fitch anticipates AG's total sales units in Peru contracting around 12% in 2015. AG's total sales units in both markets -- Chile and Peru -- are expected to continue declining but at a lower pace in 2016.
AG's operations has deteriorated significantly during the last six quarters due to a combination of the following factors: the economic slowdown in both Chile and Peru, which has hurt consumer confidence, losses related to its startup operations in Brazil, decreases in average sales prices as customers gravitate toward entry-level models, and the impact of local currency devaluations on revenues.
During the LTM ended on June 30, 2015 (LTM June 2015), AG's total revenues and total gross interest expenses was CLP782,086,448 (USD1.2 billion), CLP41,978,836 (USD67 million). AG's cash, short-term debt and total debt was CLP24,363,299 (USD35 million), CLP87,045,514 (USD125 million), and CLP575,664,489 (USD826 million) as of June 30, 2015. AG's cash flow from operations was negative CLP24,683,142 (negative USD39 million) during LTM June 2015.
Fitch currently rates Automotores Gildemeister S.A.'s (AG) as follows:
--Foreign currency Issuer Default Rating (IDR) 'C' ;
--Local currency IDR 'C';
--USD400 million unsecured senior notes due in 2021 'C/RR4'; and
--USD300 million unsecured senior notes due in 2023 'C/RR4'.
Additional information is available at 'www.fitchratings.com'.
Jose Vertiz, +1-212-908-0641
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
Alyssa Castelli, +1-212-908-0540