OREANDA-NEWS. September 07, 2015. This announcement corrects the version published on 3 June 2015 to include Mercedes-Benz Finansman Turk A.S.'s notes.

Fitch Ratings has affirmed Daimler AG's Long-term Issuer Default Ratings (IDR) and senior unsecured notes at 'A-' and Short-term IDR at 'F2'. The Outlook on the Long-term IDRs is Stable. A full list of rating actions is at the end of this release.

The affirmation reflects the group's solid business profile and the strengthening of key credit metrics. In particular, we expect profitability to further improve and free cash flow (FCF) to remain positive in the foreseeable future, up from negative 1.1% in 2014, according to Fitch's calculations.

While the financial structure and debt protection measures are strong for the ratings, FCF remains modest for the rating category. The volatility and cyclicality of the truck business is another constraint for the ratings.

KEY RATING DRIVERS
Large, Leading, Diversified Business
Daimler AG has wide geographical and business diversification. It has leading positions in the premium passenger-car segment with its Mercedes-Benz and Smart brands (MBC division). Daimler Trucks (DT) is the world's largest heavy-truck manufacturer. It is number one in Europe and North America and ranks second or third in several other countries/regions, including Brazil and Japan. The group also holds leading positions in the global van and bus markets.

Increasing Profitability, Weak FCF
Group operating margin before exceptional items recovered to 7.7% in 2014 from 6.4% in 2013 and 7.5% in 2012 and Fitch projects a further improvement to 8.2% in 2015 and towards 8.5%-9% by 2017. However, the FCF margin is relatively weak for the rating category as cash from operations (CFO) has been absorbed by increasing capex and generous dividends.

Car's Positive Momentum
We expect MBC's operating margins to increase to 8.6% in 2015 from 8% in 2014 and 6.2% in 2013. However, we believe Daimler's target of 10% EBIT margin for MBC is too ambitious in the next couple of years. We believe that profitability will be supported by the robust product pipeline, favourable FX movements in 2015-2016 and the group's cost saving strategy. This will offset our expectations of a weakening product mix at MBC and further investment to meet increasingly stringent emission legislation.

Improving Outlook for Trucks
DT's margins rose to 6.8% in 2014 from 6% in 2013 and 5.8% in 2012, due to higher sales and cost savings, and despite adverse conditions in several markets. While we do not project an increase of DT's EBIT margin to its 8% target, we believe that it could improve towards 7.5% by 2017. However, this division's volatility and cyclicality remains a rating constraint for the group.

Strong Credit Metrics
Credit metrics are supported by extraordinary cash inflows from business divestments in 2012, 2013 and 2014. Daimler enjoys adequate headroom in its ratings with CFO over adjusted debt largely above 100% and FFO adjusted leverage close to 0x.

RATING SENSITIVITIES
Future developments that could lead to positive rating action include:
-Evidence that cyclicality of the truck division has diminished. In particular, this should be evidenced by a more stable and sustained EBIT margin above 3% through the cycle.
-Ability to meet both of the group's main targets for MBC and DT profitability (10% and 8% through the cycle).
(Operating margin MBC 2014: 8.0%, 2015E: 8.6%, 2016E: 8.8%
Operating margin DT 2014: 5.8%, 2015E: 6.8%, 2016E: 7.5%)
-FCF margin remaining above 2.5% (2014: -1.1%, 2015E: 2.8%, 2016E: 1.9%).

Future developments that could lead to negative rating action include:
-Operating margins remaining below 2% (industrial)/3% (group). (Industrial: 2014: 7.6%, 2015E: 8.3%, 2016E: 8.7% -- Group: 2014: 7.7%, 2015E: 8.3%, 2016E: 8.7%).
-Material negative FCF (actual or expected) for more than three years, coming from weak underlying performance, or shareholder-friendly actions (2014: -1.1%, 2015E: 2.8%, 2016E: 1.9%).
-Gross adjusted leverage above 2x (2014: 0.1x, 2015E: -0.1x, 2016E: -0.1x) and net adjusted leverage above 1x (2014: -0.9x, 2015E: -1.0x, 2016E: -1.0x).

LIQUIDITY AND DEBT STRUCTURE
Healthy Liquidity
The group has historically reported a strong net cash position. Gross cash and marketable securities from the industrial business were EUR10.5bn at end-2014, including Fitch's adjustments for restricted and not readily available cash. It more than covered total reported financing liabilities of EUR0.9bn including adjustment for operating leases.

FULL LIST OF RATING ACTIONS

Daimler AG:
Long-term IDR affirmed at 'A-'; Outlook Stable
Senior unsecured debt affirmed at 'A-'
Short-term IDR affirmed at 'F2'
Commercial paper affirmed at 'F2'
Guaranteed notes affirmed at 'A-' and 'F2'

Mercedes-Benz Australia/Pacific Pty. Ltd.:
Guaranteed notes affirmed at 'A-' and 'F2'

Daimler International Finance BV:
Guaranteed notes affirmed at 'A-' and 'F2'

Mercedes-Benz Japan Co. Ltd.:
Guaranteed notes affirmed at 'A-' and 'F2'

Daimler Finance North America LLC:
Guaranteed notes affirmed at at 'A-' and 'F2'

Daimler Canada Finance Inc.:
Guaranteed notes affirmed at 'A-' and 'F2'

Mercedes-Benz South Africa (Pty) Ltd.:
Guaranteed notes affirmed at 'A-' and 'F2'

Daimler Mexico S.A. de C.V.:
Guaranteed notes affirmed at 'A-' and 'F2'

Mercedes-Benz Finansman Turk A.S.:
Guaranteed notes affirmed at 'A-'