Industry Top Trends 2019 - Capital Goods - S&P Global Ratings
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Industry Top Trends 2019
Capital Goods
November 14, 2018
Authors
Tuomas Erik Ekholm, CFA
Frankfurt
+49 69 33999 123
tuomas.ekholm
@spglobal.com
Ana Lai, CFA
New York
+1 212 438 6895
ana.lai@spglobal.com
Hiroki Shibata
Tokyo
+81 3 4550 8437
hiroki.shibata
Key Takeaways @spglobal.com
– Ratings Outlook: Currently, 82% of ratings on capital goods companies carry a Additional Contacts
stable outlook, versus 72% at the end of 2017. The sector outlook distribution has a
Svetlana Olsha, CFA
-5% negative bias compared to -15% at the end of last year. Carissa Schreck
– Forecasts: Overall, we expect sector revenue growth of about 3.5% and a margin Tobias Buechler, CFA
Maria Vinokur
expansion of 60-70 basis points, leading to a modest improvement in weighted
Makiko Yoshimura
credit metrics over the next 12 months. We forecast a slight increase in weighted Pierre-Henri Giraud
funds from operations (FFO) to debt to 36%-37% by 2019 from about 34% in 2018, William Buck
and an improvement in debt to EBITDA to 2.0x from 2.1x.
– Assumptions: In 2019, we expect the capital goods sector to benefit from modestly Credit Matters TV
supportive global economic developments and end markets, as well as from steady
growth in order intake over the past 12 months, which has bolstered sector order
books. End-market investment levels remain a key driver of industry performance.
Our capital expenditure (capex) forecast foresees a softening of investment growth,
which we expect to limit medium-term revenue and profit expansion.
– Risks: While not our base case, a significant slowdown in the world's largest
economies, the U.S. and China, could reduce global demand, causing a falloff in
revenues and profits. Increased trade tensions between the U.S. and China could
affect global trade, supply chains, and economic confidence, and lead to
decreasing investment. We expect U.S. monetary policy tightening to increase the
cost of debt, which could weaken credit metrics within this highly capital-intensive
sector and limit the debt capacity of highly leveraged issuers.
– Industry Trends: We witness accelerating deconglomeration and a strategic focus
on higher-margin and growth businesses throughout the sector. Simultaneously,
industry-leading players have made strategic acquisitions to strengthen their core
businesses. We believe refocusing is likely to continue and drive further portfolio
realignment, as well as strategic acquisitions, over the next few years.
S&P Global Ratings 1
Industry Top Trends 2019: Capital Goods
Ratings trends and outlook
Global Capital Goods
Chart 1 Chart 2
Ratings distribution Ratings distribution by region
Capital Goods North America W.Europe
Asia-Pacific Latin America
70 70
60 60
50 50
40 40
30 30
20 20
10 10
0 0
CCC
CCC
A+
A+
AA
AA
A-
A-
CC
SD
CC
SD
A
A
C
D
C
D
B
B
BB
BB
B+
B+
B-
B-
AA+
AA+
AAA
AAA
BBB
BBB
BB+
CCC+
BB+
CCC+
AA-
BB-
CCC-
AA-
BB-
CCC-
BBB+
BBB+
BBB-
BBB-
Chart 3 Chart 4
Ratings outlooks Ratings outlooks by region
Positive Negative
Negative WatchNeg Stable WatchPos Positive
6% 11%
WatchNeg 100%
1%
80%
60%
40%
20%
Stable
0%
82%
APAC LatAm N.America W.Eur
Chart 5 Chart 6
Ratings outlook net bias Ratings net outlook bias by region
Net Outlook Net Outlook N.America W.Europe
Capital Goods
Bias (%) Bias (%) Asia-Pacific
10 10
5
0
0
-5 -10
-10 -20
-15
-30
-20
-25 -40
13 14 15 16 17 18 13 14 15 16 17 18
Source: S&P Global Ratings. Ratings data measured quarterly with last shown quarter ending September 30, 2018
The global capital goods sector continued its positive performance in 2018, propelled by a The even global
continuous increase in the demand for equipment and services across end markets, outlook distribution
which had a positive impact on order and revenue growth and sector profitability. As a reflects our view of
result, 82% of our rated capital goods companies now have a stable outlook versus 74%
stable sector
at the end of 2017. The share of negative outlooks has declined steadily since the third
quarter of 2016, and the net negative outlook share is now -5% versus -15% at the end of performance in 2019
2017. This is mainly due to the improvement in the sector's credit metrics increasing the after two years of
credit ratio headroom at the current ratings. The even global outlook distribution reflects recovery.
our view of stable sector performance in 2019 after two years of recovery.
S&P Global Ratings November 14, 2018 2Industry Top Trends 2019: Capital Goods
Industry forecasts
Global Capital Goods
Chart 7 Chart 8
Revenue growth (local currency) EBITDA margin (adjusted)
N.America W.Europe N.America W.Europe
Asia-Pacific Global Asia-Pacific Global
Forecast Forecast
10% 20%
18%
5% 16%
14%
0% 12%
10%
-5% 8%
6%
-10% 4%
2%
-15% 0%
2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020
Chart 9 Chart 10
Debt / EBITDA (adjusted) FFO / Debt (adjusted)
N.America W.Europe N.America W.Europe
Asia-Pacific Global Asia-Pacific Global
Forecast Forecast
3.0x 60%
2.5x 50%
2.0x 40%
1.5x 30%
1.0x 20%
0.5x 10%
0.0x 0%
2015 2016 2017 2018 2019 2020 2015 2016 2017 2018 2019 2020
Source: S&P Global Ratings. Revenue growth shows local currency growth weighted by prior-year common-currency revenue-share. All other figures
are converted into U.S. Dollars using historic exchange rates. Forecasts are converted at the last financial year-end spot rate. FFO--Funds from
operations.
Our base case foresees growth in sector revenues of 4.3% in 2018 and of between 3.5% Based on our
and 3.7% in 2019, reflecting our view of slower economic and investment growth in key assumptions, the
markets. We expect EBITDA margins to increase moderately, from 15.3% in 2018 to about sector's weighted key
16% in 2019, as a result of topline growth, leaner cost bases as a result of past
credit metrics will
restructuring, and a focus on higher-margin services and products.
strengthen modestly
Based on our assumptions, the weighted key credit metrics for the sector will strengthen in 2019.
modestly in 2019. We forecast that S&P Global Ratings-adjusted FFO to debt will
increase to 34% in 2018 and to between 36% and 37% in 2019, and that debt to EBITDA
will improve to 2.1x in 2018 and 2.0x in 2019. However, the strengthening of issuers'
financial profiles, especially going into 2020, will depend on the economic environment
not materially weakening, as well as on companies' appetite for debt-financed mergers
and acquisitions (M&A).
S&P Global Ratings November 14, 2018 3Industry Top Trends 2019: Capital Goods
Key assumptions
Capital Goods
1. A supportive economic environment, with rising trade tensions
The U.S economy remains solid, with our estimate of real GDP growth at 2.9% in 2018 and Tariffs are likely to
2.3% in 2019, which we expect to support the sector. An economic risk to issuers comes weaken the earnings
from the so-called "list three" duties that were enacted on Sept. 24, 2018. These tariffs of U.S.-based firms
are likely to weaken the earnings of U.S.-based firms that import large volumes of
that import large
supplies from China. The impact on earnings will depend on firms' abilities to pass
through tariff-related costs to customers or to redirect goods through the supply chain. volumes of supplies
With the U.S. government threatening to close the U.S.-Mexico border in response to an from China.
anticipated surge in immigration from central and South America, the supply chains of
U.S. companies could come under further pressure. Data from S&P Global Paniva
indicate that the capital goods industry was the third-largest user of Mexico trucking
routes over the past 12 months to transport heavy machinery parts worth $442 million
and cables worth $728 million.
U.S. monetary policy tightening, with the Fed's latest rate hike bringing the benchmark
federal funds rate to 2.00%-2.25%, is likely to start to pressure highly leveraged issuers
with a high proportion of variable-rate debt. We think most issuers can absorb a
moderate pace of interest rate hikes, given limited refinancing needs through 2019, but a
sharper rate of increases could put pressure on weaker issuers. Under the scenario of a
moderate pace of interest rate hikes, we expect steady access to the capital markets to
support potential M&A and leveraged buyouts in the sector.
European markets face relatively stable economic prospects going into 2019, although There is a heightened
the risk of a no-deal disruptive Brexit continues to rise. We expect real GDP growth of risk of an extended
2.0% in the eurozone in the remainder of 2018, and of 1.7% in 2019, with substantially trade confrontation
lower growth of 1.3% in the U.K. in 2018 and 2019. Financing conditions in Europe will
that could have a
remain favorable, allowing for strategic M&A.
significant impact on
Contrary to in the U.S. and Europe, in China, corporate deleveraging has paused. This is global trade, supply
due mainly to decelerating earnings growth rather than profligate spending or borrowing, chains, and economic
as corporate spending appetite is restrained. First, trade tensions between the U.S. and
confidence.
China have steadily increased and show no signs of abating. Instead, there is heightened
risk of an extended trade confrontation with elevated tariffs that could have a significant
impact on global trade, supply chains, and economic confidence. Second, capital outflow
pressures persist due to better economic growth in the U.S. and tighter U.S. monetary
policy. While China's government aims to deleverage state-owned enterprises, it is also
fine-tuning financial-risk-reduction measures to support corporate financing. We
estimate real GDP growth in China of 6.5% this year and 6.3% in 2019, and real GDP
growth in the Asia-Pacific region of 5.6% in 2019.
The macroeconomic environment has become more challenging in Latin America.
External financing conditions have tightened further amid ongoing U.S. dollar strength
and rising U.S. short-term interest rates. This has weighed on investor confidence for
emerging market economies with large fiscal and/or external account imbalances--
especially those where domestic political dynamics create uncertainty over the
government's ability to implement policies that correct those imbalances. This is notable
in Brazil and Argentina--the region's largest and third-largest economies, respectively--
and we've lowered our GDP forecasts for these two countries. We now expect Brazil's
economy to expand by just 1.4% and 2.2% this year and next, and Argentina's economy to
contract 2% this year and remain stagnant in 2019.
S&P Global Ratings November 14, 2018 4Industry Top Trends 2019: Capital Goods
2. Key end-market demand to support sector performance through 2019
Virtually all important end markets for capital goods original equipment manufacturers (OEMs)
continued on a positive trend in over the past 12 months, and most market participants reported
a continuously increasing order intake by the third quarter of 2018. We expect the positive sector
performance to continue, at least through the first half in 2019, supported by market dynamics
and issuers' order books. Overall, we expect the healthy demand for equipment and services to
continue in 2019, both for commodities- and non-commodities-related end markets, albeit at a
slower rate.
Since the oil price collapse of 2014-2016, oil benchmarks have continued to recover Even with recovering
during 2018, reaching levels of $70 per barrel for West Texas Intermediate and $80 per fundamentals, the oil
barrel for Brent and above. For 2019, we believe that oil prices will likely come under majors remain
pressure, with an average assumption of $65 per barrel for Brent, reflecting weakening
disciplined and
global GDP growth and increasing overall production volumes worldwide. Over the past
cautious about
three years, oil majors and other producers have focused on reducing and optimizing
their cost structures to become more resilient to lower prices. Even with currently investment in new
recovering fundamentals, the oil majors remain disciplined and cautious about projects.
investment in new projects, although some onshore producers in the U.S. have started to
increase their investment budgets from lows in 2016. We believe that the industry is still
far from the capex in 2012-2014, even if activity levels haven't dropped as severely as
capex in dollars. For capex to rebound materially, higher prices, supported by stronger
world GDP prospects and more visibility on future oil demand, would likely be necessary.
In the mining sector, commodity prices continued to increase throughout 2018,
contributing positively to operating cash flow generation. However, we expect the
prevailing mood of balance sheet conservatism to persist in 2019. Based on recent capex
guidance, spending in 2019 and 2020 will remain fairly flat. Moreover, capex will focus on
brownfield expansion, rather than greenfield projects, and on projects with short lead
times until completion and relatively high returns.
In the utilities sector, trends vary substantially among different regions and subsectors. Auto sector demand
In Europe, investment in new conventional generation capacity remains low, with will support OEMs
currently only 2.5 gigawatts of natural gas and coal power plants under construction until with proven
2020. According to market participants, the future global demand for large gas turbines
capabilities in the
will level out at around 110 per year versus the current OEM market capacity of 400. This
has sparked a restructuring need among players with exposure to conventional power digitalization of
generation, such as General Electric Co. (GE) and Siemens AG. In developed markets, we manufacturing, big
believe that energy efficiency and the expansion of renewable energy generation continue data, and artificial
to drive capex, but pricing for the equipment will remain under high pressure. In emerging intelligence.
markets, we still see demand for gas and power infrastructure investments. Overall, the
energy subsector is under immense cost pressure and we are likely to see more industry
consolidation over the next two-to-three years.
In the automotive sector, we expect investment to increase modestly in 2019 and 2020,
despite signs of weakening light vehicles sales, particularly in China. We expect global
auto industry growth of about 1%-2% in 2019 and 2020. A significant share of the
spending over the next couple of years will be on engine electrification, as auto
manufacturers and suppliers need to sharpen their competitive edge to prevail in an
environment with more restrictive environmental standards and higher requirements for
connectivity and data collection and processing capabilities. We therefore believe that
auto sector demand will support OEMs with proven capabilities in the digitalization of
manufacturing, big data, and artificial intelligence.
The construction sector continues to show high demand in Asia and North America, and
positive performance even in the mature markets of Western Europe. Reflecting
increasing interest rates globally, demand growth is likely to lose momentum in 2019 and
concerns increase for a real estate bubble in China and in some regions in Northern
Europe.
S&P Global Ratings November 14, 2018 5Industry Top Trends 2019: Capital Goods
3. De-conglomeration and strategic M&A continue to transform the industry
With healthy market conditions and stronger balance sheets in the capital goods sector, we are
seeing more M&A involving divestitures as well as acquisitions. Several large diversified issuers
have completed or are contemplating spin-offs or divestitures of sizable business units, as well
as strategic acquisitions, to improve margins and enhance overall enterprise value, and we
believe this trend is likely to continue. We believe that issuers will continue to focus on running
leaner, more profitable, and faster-growing businesses, and that this will drive further portfolio
realignment.
Generally, we expect the ratings impact on the remaining entities following the We believe issuers
completion of a sizable divestiture to be neutral to negative, depending on whether will continue to focus
issuers are able to improve their credit measures enough to offset the loss of diversity on running leaner,
and potential increase in cyclicality. For example, we believe that GE's planned
more profitable, and
divestiture of its health care segment will leave it with less business diversity, and as
such, the potential for heightened volatility in profits and cash flow due to the cyclicality
faster-growing
of the remaining power and aviation businesses. To offset this outcome, we expect GE to businesses.
strengthen its balance sheet and achieve lower debt leverage of about 2.5x to mitigate
the loss of diversification.
Honeywell International Inc. recently span off two of its business units--transportation
systems (Garrett), and homes and global distribution (Resideo). While these actions
reduce the scale and the diversity of Honeywell's operations, the company will benefit
from a more focused mix of faster-growth and higher-margin businesses. The company
also transferred a significant portion of its legacy liabilities (including asbestos,
environmental, and other liabilities) to the spun-off entities, and we believe it will use a
portion of the proceeds from the spinoff to reduce its debt and thereby maintain the
current credit ratings.
Siemens' "2020+" strategy focuses on streamlining its businesses in order to increase its Generally, we expect
revenues and profit margins at a higher rate than in the past. The company has also the ratings impact on
announced a new structure consisting of three operating companies, which will provide entities following the
more entrepreneurial freedom at individual businesses to accelerate growth. The 2020+
completion of a
strategy follows Siemens' previous measures to streamline the group, which included
listing 15% of its health care equipment and services business Siemens Healthineers in
sizable divestiture to
March 2018, signing an agreement to combine its mobility business with Alstom S.A. in be neutral to
September 2017, and merging its wind power business with Gamesa in April 2017. negative.
Siemens has also undertaken several transactions to strengthen its software
capabilities, including the acquisitions of Mendix, Mentor Graphics, and CD-adapco.
A further example of de-conglomeration is the recent announcement by German
manufacturing and steel group thyssenkrupp AG to break up its current conglomerate
structure and split the group in two listed companies--tk Industrials and tk Materials.
The transaction, which the group's activist shareholders support, seeks to separate the
more stable and profitable capital goods, auto, and engineering divisions from the steel
and materials divisions, and is due to be implemented over the next 18 months.
Earlier in 2018, Swiss engineering group ABB Ltd. conducted a strategic review of its
business activities, initiated by its shareholders, including international equity investors.
ABB decided against a radical structural change, most notably to continue to manage its
Power Grids division as a core part of the group, but to exit from turnkey project-related
activities with higher cash flow volatility and risk. ABB also completed the acquisition of
GE Industrial Solutions in the U.S. in 2018 to complement its low-voltage electrification
business, and of machine and factory automation solutions provider B&R a year earlier.
We see a trend of strategic portfolio allocation among the large industry players, as well
as in Asia-Pacific. Hitachi Ltd. has steadily improved its EBITDA margin from around 10%
to 12% by continuously downsizing or withdrawing from low-profitability or noncore
S&P Global Ratings November 14, 2018 6Industry Top Trends 2019: Capital Goods
business lines, including logistics services, electric components, and semiconductor-
manufacturing equipment. In future, we expect the group to focus on its core business
areas, including renewable energy, distribution facilities, railway turnkey solutions,
elevators, and auto, to achieve higher growth and profitability, as well as maintain a
sound financial profile.
Key risks and opportunities
Capital Goods
1. Dependency on global capex in key industry sectors
The economic and political environment, as well as the level of industrial production and trade, Our capex forecast
have a direct impact on investment patterns in global capital goods players' key end markets. suggests a general
Our capex forecast in 2019 and 2020 for capital goods OEMs' key end markets suggests a general slowdown of
slowdown of investment growth after two years of strong expansion. investment growth
The expansion in 2017 and 2018 occurred across all industries, but was particularly after two years of
marked in the commodity price-driven industries of oil and gas and metals and mining. In strong expansion.
addition, the good performance of the auto industry propelled investment in that sector.
We do not expect further strengthening of commodity prices and foresee softening
growth in the auto sector, which is in line with the capex we forecast for the auto and
other sectors (see charts 10 and 11).
Chart 11 Chart 12
Forecast capex for key industrial end markets Forecast capex trend year-on-year
Autos Metals and Mining Autos Metals and Mining
USD, Construction Transportation Infra.
Construction Transportation Infra.
Bn Oil and Gas Total
Oil and Gas YOY
1400 %60
Forecast Forecast
1200
40
1000
800 20
600 0
400
-20
200
0 -40
2016 2017 2018 2019 2020 2021 2017 2018 2019 2020 2021
Source: S&P Global Ratings, rated universe. Source: S&P Global Ratings, rated universe.
One example of the effect of end-market performance on investment levels is the oil and The last market
gas market, which is a performance driver for many capital goods OEMs. The last downturn in
commodities market downturn in 2014-2016 caused a broad loss of revenues and
commodities caused
deterioration of profitability across the capital goods sector, resulting from severe cuts in
capex and operating expenses, and affecting in particular companies with high exposure
a broad loss of
to commodities and process industries. We do not forecast an upward trend in oil and gas revenue and
prices, and therefore our capex expectation for commodities companies is cautious. Our deterioration of
oil price expectation of $55-$60 per barrel until 2020 is lower than consensus estimates profitability across
of around $70 per barrel. the capital goods
The industry's capex closely follows commodity price movements with a short time lag sector.
(see chart 12). In 2013, with oil prices above $100 per barrel, Exxon Mobil Corp. and Royal
S&P Global Ratings November 14, 2018 7Industry Top Trends 2019: Capital Goods
Dutch Shell PLC spent $34 billion and $32 billion in capex, respectively, which fell to $15
billion and $21 billion by 2017, and picked up again in 2018.
Chart 13
Oil major's' capex development versus oil price
110% 110 Exxon Mobil
100% 100
Exxon Mobil cons. forecast
90% 90
Shell
80% 80
Shell cons. forecast
70% 70
BP
60% 60
BP cons. forecast
50% 50
Oil mix (50% Brent/ 50%
40% 40 WTI)
S&P expectations Oil mix
30% 30
2012 2013 2014 2015 2016 2017 2018 2019 2020
Source: S&P Global Ratings.
We expect the majority of our rated portfolio not to see a severe direct impact from either Most rated capital
restrictions arising from the U.S.-China trade dispute or increasing tariffs on certain goods companies rely
products. However, the ripple effects will be felt in some subsectors and could interrupt increasingly on
investment. In addition, weakening auto sales in China, the world's largest market, operating expenditure
coupled with decreasing trade flows as a consequence of the escalating tensions, mean
to maintain revenues
that capital goods companies with high exposure to the auto sector could come under
pressure should investment levels fall.
and operating profit.
Despite the high importance of investment levels and capex growth, other aspects play
an increasingly important role for the credit quality of the capital goods sector. Most
rated capital goods companies rely increasingly on operating expenditure to maintain
revenues and operating profit, whereby they are willing to succumb to pricing pressure on
original equipment sales in return for long-term service contracts. This has reduced cash
flow volatility over the cycle, improving the underlying credit profiles of rated entities.
2. A downturn in the global economy in 2019 and rising interest costs
While it is not our base-case assumption for 2019, a sharp downturn in the global economy could
hurt credit quality in the sector due to the cyclical nature of the industry and a high proportion of
speculative-grade ratings. A significant slowdown in the world's largest economies, the U.S. and
China, could reduce global demand, causing a falloff in revenues across the industry.
However, we believe that most large capital goods companies are well positioned to
withstand the next downturn as they have been experiencing growth in both revenues and We believe that most
profitability since 2017. In addition, many companies completed meaningful large capital goods
restructuring initiatives--including process efficiencies and manufacturing footprint companies are well
optimization--during the downturn in the metals and oil and gas markets in 2015 and positioned to
2016, and are operating with leaner cost structures. withstand the next
downturn.
We believe that the debt maturity profile of investment-grade capital goods companies is
manageable in the next two years, thanks to a relatively well-staggered debt maturity
pattern for the sector as a whole (see charts 14 and 15). However, we see increasing
refinancing risk for the weaker-rated issuers in the single 'B' or 'CCC' rating categories
due to high refinancing needs from 2020 (see chart 16). Increasing interest rates and
S&P Global Ratings November 14, 2018 8Industry Top Trends 2019: Capital Goods
financial market volatility could hamper these issuers' access to the capital markets,
increase their financing costs, and spark heightened refinancing risk. In a downturn
scenario, we foresee a material weakening of credit quality and a potential increase in
defaults for highly leveraged issuers unable to achieve sustainable revenue growth, or
with limited access to financing.
With the U.S. 10-year Treasury note yield breaching 3.0% and our expectation of three In a downturn
more rate increases in 2019, issuers' cost of debt will continue to increase and hurt their scenario we foresee a
interest coverage ratios. Still, most capital goods issuers have limited exposure to material weakening of
floating-rate debt, with just under 20% of debt variable rate (see chart 13). The exposure credit quality for
to variable-rate debt is greater for speculative-grade issuers, due to their dependence on highly leveraged
instruments with a variable base rate, such as term loans. issuers unable to
In a downturn scenario, we can also expect tighter liquidity conditions. Shortfalls in cash
achieve sustainable
flows from operations or a reduction in headroom under financial covenants could
revenue growth.
constrain liquidity sources. Still, we think that liquidity is adequate for most issuers.
Additionally, U.S.-based issuers benefit from both a recent tax reform that lowered tax
rates and the repatriation of cash from subsidiaries overseas.
Chart 14 Chart 15
Fixed versus variable-rate exposure Long-term debt term structure
LT Debt Due 1 Yr LT Debt Due 2 Yr
Variable Rate Debt (% of Identifiable Total) LT Debt Due 3 Yr LT Debt Due 4 Yr
LT Debt Due 5 Yr LT Debt Due 5+ Yr
Fixed Rate Debt (% of Identifiable Total) Nominal Due In 1 Yr
100% 1,500 250
90% $ Bn
80% 200
70%
1,000
60% 150
50%
40% 100
30% 500
20% 50
10%
0% 0 0
2007 2009 2011 2013 2015 2017 2007 2009 2011 2013 2015 2017
Source: S&P Global Ratings. Source: S&P Global Ratings.
Chart 16 Chart 17
Debt maturity pattern, investment grade Debt maturity pattern, speculative grade
Maturing Debt (USD, Bn) Maturing Debt (USD, Bn)
45 14
40 12
35
10
30
25 8
20 6
15 4
10
2
5
0 0
2018.2H 2019 2020 2021 2022 2023 2018.2H 2019 2020 2021 2022 2023
Source: S&P Global Ratings, Representative sample of rated universe. Source: S&P Global Ratings, Representative sample of rated universe.
S&P Global Ratings November 14, 2018 9Industry Top Trends 2019: Capital Goods Related Research – Global Financing Conditions: Bond Issuance Is Forecast To Finish 2018 At $6.05 Trillion And To Reach $6.09 Trillion In 2019, Oct. 24, 2018 – thyssenkrupp Outlook Revised To Developing On Planned Spin-Off Of tk Industrials; 'BB/B' Ratings Affirmed, Oct. 8, 2018 – General Electric Co. Downgraded To 'BBB+' From 'A' On Impact From Power; CEO Replaced; Outlook Stable, Oct. 2, 2018 – Trade Tensions Begin To Weigh On Conditions In Some Regions, Sept. 28, 2018 – Outlook On Japan-Based Hitachi Capital Revised Up To Stable After Upgrade Of Parent; 'A-/A-2' Ratings Affirmed, Aug. 8, 2018 – CNH Industrial N.V. And Subsidiary Ratings Raised To 'BBB' From 'BBB-'; Outlook Stable, Aug. 8, 2018 This report does not constitute a rating action. S&P Global Ratings November 14, 2018 10
Industry Top Trends 2019: Capital Goods
Cash, debt, and returns
Global Capital Goods
Chart 18 Chart 19
Cash flow and primary uses Return on capital employed
Capex Dividends
Global Capital Goods - Return On Capital (%)
Net Acquisitions Share Buybacks
$ Bn
Operating CF
250 7
200 6
150 5
100 4
50 3
0 2
-50 1
-100 0
2007 2009 2011 2013 2015 2017 2007 2009 2011 2013 2015 2017
Chart 20 Chart 21
Cash and equivalents / Total assets Total debt / Total assets
Global Capital Goods - Cash & Equivalents/Total Global Capital Goods - Total Debt / Total Assets (%)
Assets (%)
12 50
45
10 40
8 35
30
6 25
20
4 15
2 10
5
0 0
2007 2009 2011 2013 2015 2017 2007 2009 2011 2013 2015 2017
Source: S&P Global Market Intelligence, S&P Global Ratings calculations
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