Moody's Investors Service has upgraded the corporate family rating (CFR) of Faurecia SA (Faurecia) to Ba1 from Ba2. The outlook on the ratings is stable, the credit agency said.

Moody's said: "The upgrade of Faurecia's ratings reflects the company's continued improvements in its operating performance over the last two years, which has sustained leverage metrics within our expectations for a rating upgrade. Moreover, profitability has consistently improved and now meets
our expectations for a Ba1. Within a stable industry environment, we expect further gradual improvements in Faurecia's credit metrics."

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The rating upgrade reflects Faurecia's gradual improvement of key credit metrics to the level required for a Ba1 rating.

Leverage (Moody's adjusted debt/EBITDA estimated at 2.7x as of December 2017 vs. 3.0x as of 2016) and EBITA margins (4.8% on total sales, 5.5% on value added sales, estimated for 2017, based on Moody's calculation, vs. 4.2% / 5.0% in 2016) have improved in line with expectations. Moreover, free cash flows have recovered (+6.4% Moody's adjusted FCF/debt in 2017, after 0% in 2016).

For full year 2017, Faurecia reported an increase in value added sales (excluding monoliths) of 10.6% to EUR17.0bn and an increase in operating
income of 20.6% to EUR1.17bn. Faurecia's sales growth substantially outperformed global light vehicle production (+2.3% in 2017). All three
divisions, seating, interiors and clean mobility, contributed to sales and operating profit growth.

Faurecia's Corporate Family Rating (CFR) reflects as positives: (a) the large size of the group, which positions it as one of the 10 largest global automotive suppliers; (b) its strong market position with a leading market share in seating, emission control technologies and interiors; (c) long-standing relationships across a diversified number of original equipment manufacturers (OEMs); and (d) positive exposure to key industry themes (emissions reduction, light weighting and autonomous driving) that supports revenue growth above light vehicle production.

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Negative considerations include (a) significant exposure to OEM production which is highly cyclical and subjects the company to the manufacturers bargaining power; (b) limited exposure to aftermarket activities, which are typically more stable and at higher margin; (c) relatively weak, albeit improving profitability; (d) recently improved but overall still limited free cash flow (FCF) generation.

Moody's said: "The stable outlook incorporates our expectation that Faurecia will continue to improve its profitability, further reduce its leverage and thus build on the solid improvements the group has shown over the last three years. Moody's anticipates a continued strengthening of Faurecia's credit quality and buildup of some headroom for bolt-on acquisitions to support growth in strategic areas."