Alno’s CCC Corporate Issuer Credit Rating (CICR) is constrained by the company’s weak Financial Risk Profile with a negative expected adjusted Debt/EBITDAR of about minus 6.6x in 2014E (2013: 16.9x) and low EBITDAR Fixed Charge Coverage of minus 1.8x in 2014E (2013: 0.7x) as well as by its weak profitability, very dependent on the economic cycle. With a weak liquidity position, Alno relies strongly on external financing in order to finance the operating business.

Positive rating drivers are Alno’s solid market position as the top 3 market player in the German and Swiss markets for kitchen furniture with an excellent brand recognition (Alno and Piatti), as well as its solid geographical diversification. Due to the debt-financed acquisition of Swiss AFP Küchen (“AFP”) which was completed in March 2014, Alno’s financials are still very weak, however, are expected to improve with related synergies and restructuring benefits of about EUR12m materialising. AFP furthermore improved Alno’s geographical diversification and added a strong brand, which was valued by an external assessor in May 2014 at EUR 37m.

KEY RATING DRIVERS
 

TOP 3 market position in Germany and Switzerland. With an expected turnover of about EUR 540m in 2014E, Alno is among the TOP 3 kitchen manufacturers in the German and Swiss market with an estimated market share in the first half 2014 of about 20%. The company’s multi-brand strategy covers all kitchen segments and contributes to this strong market standing, particularly in the low and medium price segments.

Improved geographical diversification. With the acquisition of Swiss kitchen manufacturer AFP, Alno has significantly improved its geographical diversification with over 50% of sales expected to be generated outside Germany in 2014E, compared to roughly 32% in 2013, before the acquisition of AFP.

Weak and volatile profitability expected to improve. Driven by expected restructuring effects and synergies from the AFP acquisition of an estimated EUR 12m, Alno’s EBITDAR margin is expected to improve to 2.4% in 2015E (compared to 1.4% in 2013). Alno’s group EBITDAR margin is, however, very volatile and dependent on the economic cycle as well as on the success of the ongoing corporate restructuring.

Very weak Financial Risk Profile expected to improve. Alno’s DEBT/EBITDAR is expected to amount to minus 6.6x in 2014E while its 2014E EBITDA Fixed Charge Cover is expected to be minus 1.8x. These should improve to 11.0x and 1.0x respectively in 2015E. This is expected to be driven by restructuring benefits and synergies of about EUR 12m resulting from the integration of AFP. Furthermore, the recent good order intakes and some growth prospects in Germany and Switzerland are expected to support improvement in debt protection measures.

Strong reliance on external financing. Alno’s ability to finance its operating business and to meet its financial obligations depends to a great extent on external financing. The important standstill agreement with Alno’s major supplier Whirlpool, Alno’s largest shareholder, was extended to March 2016. Moreover, the company is strongly reliant on shareholder loans, which rank inferior to the Corporate Bond and mature in 2016.

Stretched liquidity. Alno’s debt maturing in 2016 amounts to EUR 21.8m. Given the weak operational strength of the company this is not likely to be fully covered by the company’s anticipated cash position of EUR 3.5m in December 2015E and undrawn committed bank facilities (December 2014: 6.1m).

B- Corporate Bond Rating. The B- Corporate bond rating reflects Alno’s CICR of CCC as well as the expected recovery in a hypothetical default scenario. The bond is subordinated to the secured debt (bank loans and payables) issued by Alno and its Swiss subsidiary AFP.

Negative outlooks. The outlooks of the ratings are negative. The negative outlooks are mainly driven by Alno’s weak liquidity profile. A positive rating action on the CICR and the long-term debt instrument rating might be warranted once the synergies and restructuring benefits from the AFP acquisition come due and lead to a sustained improvement in Alno’s profitability and cash flow generation.

Important information
Information pursuant to Regulation (EC) No 1060/2009 on credit rating agencies, as amended by Regulations (EU) No. 513/2011 and (EU) No. 462/2013

Responsibility
The party responsible for the dissemination of the financial analysis is Scope Ratings AG, Berlin, District Court for Berlin (Charlottenburg) HRB 161306 B, Chief Executive Officer: Torsten Hinrichs.

The rating analysis has been prepared by Sebastian Zank, Lead Analyst
Responsible for approving the rating: Dr. Britta Holt, Committee Chair

Rating history (Corporate Bond)
Date Rating

22.12.2014 B- outlook Negative
23.12.2013 B- outlook Negative
23.04.2013 B- outlook Stable
 

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