September 09, 2024 06:31 GMT
Fitch Cuts DXC Outlook To Negative
TECHNOLOGY
Baa2[N]/BBB-/BBB[N]
Negative outlook reflects sustained revenue decline and erosion of FCF; rating maintained on cost-cutting measures and restructuring of legacy contracts though sustainability is unclear.
- Revenue decline continues, with a 1Q25 book-to-bill ratio signalling no stabilization; margins have improved and divestitures in the infrastructure segment have improved LT profitability but revenue CAGR from 2018-2024 remained at -7.4%.
- FCF guidance for FY25 is USD 450mn, down from over USD 900mn in FY23/FY24. While USD 250mn attributed to one-time restructuring costs, a further USD 200mn has also been eroded.
- EBITDA leverage improved to 2.1x in FY24 from 3x at FY21 and is expected to remain between the thresholds of sustainably below/above 2x/2.5x, supported by margin improvements, ongoing contract restructuring and growth in the GBS segment as opposed to debt reduction.
- Liquidity remains strong with USD 1.3bn cash on hand and projected annual FCF over USD 500mn, assuming revenue stabilization; debt expected to stay near USD 4bn.
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