Alno’s CCC Corporate Issuer Credit Rating is strongly constrained by the company’s weak financial-risk profile. Although the company has strongly improved its operating cash flows, Alno’s internal cash flow generation is still not sufficient to cover fixed charges. As a result, the company is still dependent on external debt and/or equity financing. While Alno’s liquidity is still seen as stretched, the company has more room to manoeuvre, with an expected prolongation of Alno’s standstill agreement with Whirlpool and an extension of major credit lines into 2017.

Scope rates the company’s EUR 45m senior unsecured corporate bond at B-. The debt-instrument rating reflects the bond’s ranking below Alno’s senior secured debt positions, as well as Scope’s expected recovery of ‘above average’ (50-70%) under a hypothetical default scenario.

KEY RATING DRIVERS

Among top three in Germany and Switzerland. Despite the sale of Impuls Küchen in Q2 2015, Alno remains among the leading kitchen manufacturers in the German and Swiss market, with an estimated market share about 20%. The company’s multi-brand strategy covers almost all kitchen segments, contributing to this strong market standing.

Further improved geographical outreach. Thanks to the integration of Swiss kitchen manufacturer, AFP, and good order-momentum in the UK, the US and Russia, Alno continuously improved its geographical diversification, with over 55% of sales expected from outside Germany in 2015E (2014: 52%). An increasing independence from the German core market is not only seen as positive in terms of diversification, but is also be expected to improve the company’s profitability, given the strong bargaining power of purchase associations in Germany.

Still-weak operating margins. While Alno has made progress on almost all kitchen segments, backed by the kick-in of restructuring effects and synergies from the AFP acquisition, Alno’s margin profile is still very weak with an expected EBITDA margin of minus 0.7% in 2015E (2014: minus 5.7%). Expected sales growth outside of Germany is expected to lead to Alno’s margin profile breaking even in 2016. Nevertheless, Alno’s margins are still very weak compared to peers and may be vulnerable to an economic cool-down.

Very weak financial risk profile expected to improve. Despite the company’s progress on its corporate restructuring, Alno’s key credit metrics are still considered very weak given the still-negative adjusted EBITDA of minus EUR 3.6m. As a result, adjusted debt/EBITDAR in 2015E is expected at 43.4x, while Alno’s EBITDA interest cover is expected at an insufficient minus 0.4x. With an anticipated break-even in 2016 (2016E EBITDA: EUR 8.6m) the company’s key credit metrics are expected to improve (EBITDA interest cover 2016E: 1.0x and adjusted debt/EBITDAR 11.3x). However, these factors still point to the company’s weak financial risk profile.

Stretched liquidity and persistent reliance on external financing. Alno’s ability to finance operating business and meet financial obligations remains strongly dependent on external financing, whether through debt or equity instruments. As the company is hardly able to redeem maturing shareholder loans of EUR 24m in 2016, Scope expects a deferral of their repayment and a prolongation into 2017 of the important standstill agreement with Alno’s major supplier, Whirlpool. While the expected deferral of Alno’s maturing shareholder-loan positions provides it more room to redeem the remaining EUR 7.1m of bank debt, Scope believes Alno will still require external funding, given the comparatively low operating cash flows and limited access to committed, undrawn credit lines.

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 remain Negative given the continuously stretched liquidity position of the company, which requires the strong commitment of anchor shareholders to bridge potential shortfalls in liquidity over the next 12 months. A rating upgrade would be warranted if the company significantly improved its fixed-charge coverage ratios to more than 1.2x on a sustainable basis, and achieved a sustainable restructuring of its debt profile. A negative rating action would be required if the standstill with Whirlpool were not extended, resulting in the company facing severe refinancing risks from a failed prolongation of remaining credit lines.
 
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, Executive Board: Torsten Hinrichs (CEO), Dr. Stefan Bund.

The rating analysis has been prepared by Sebastian Zank, Lead Analyst
Responsible for approving the rating: Olaf Tölke, Committee Chair

Rating history EUR 45m senior unsecured corporate bond

22.12.2014 B- outlook Negative
23.12.2013 B- outlook Negative
23.04.2013 B- outlook Stable (Initial)

Rating history CICR

22.12.2014 CCC outlook Negative
23.04.2013 CCC+ outlook Stable (Initial)

The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months. A rating change is, however, not automatically ensured.

Information on interests and conflicts of interest
The rating was prepared independently by Scope Ratings but for a fee based on a mandate of the rated entity.

As at the time of the analysis, neither Scope Ratings AG nor companies affiliated with it hold any interests in the rated entity or in companies directly or indirectly affiliated to it. Likewise, neither the rated entity nor companies directly or indirectly affiliated with it hold any interests in Scope Ratings AG or any companies affiliated to it. Neither the rating agency, the rating analysts who participated in this rating, nor any other persons who participated in the provision of the rating and/or its approval hold, either directly or indirectly, any shares in the rated entity or in third parties affiliated to it. Notwithstanding this, it is permitted for the above-mentioned persons to hold interests through shares in diversified undertakings for collective investment, including managed funds such as pension funds or life insurance companies, pursuant to EU Rating Regulation (EC) No 1060/2009. Neither Scope Ratings nor companies affiliated with it are involved in the brokering or distribution of capital investment products. In principle, there is a possibility that family relationships may exist between the personnel of Scope Ratings and that of the rated entity. However, no persons for whom a conflict of interests could exist due to family relationships or other close relationships will participate in the preparation or approval of a rating.

Key sources of Information for the rating
- Prospectus
- Website of the rated entity
- Annual financial statements
- Valuation reports, other opinions
- Annual reports/semi-annual reports of the rated entity
- Current performance record
- Detailed information provided on request
- Data provided by external data providers
- Interview with the rated entity
- External market reports
- Press reports / other public information

Scope Ratings considers the quality of the available information on the evaluated company to be satisfactory. Scope ensured as far as possible that the sources are reliable before drawing upon them, but did not verify each item of information specified in the sources independently.

Examination of the rating by the rated entity prior to publication
Prior to publication, the rated entity was given the opportunity to examine the rating and the rating drivers, including the principal grounds on which the credit rating or rating outlook is based. The rated entity was subsequently provided with at least one full working day, to point out any factual errors, or to appeal the rating decision and deliver additional material information. Following that examination, the rating was not modified.

Methodology
The methodology applicable for this rating (Corporate Rating Methodology) is available on www.scoperatings.com. The historical default rates of Scope Ratings can be viewed on the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s default rating, definitions of rating notations and further information on the analysis components of a rating can be found in the documents on methodologies on the rating agency’s website.

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© 2015 Scope Corporation AG and all its subsidiaries including Scope Ratings AG, Scope Analysis, Scope Investor Services GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope cannot, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided “as is” without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or otherwise damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party, as opinions on relative credit risk and not as a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings AG at Lennéstraße 5 D-10785 Berlin.

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