The issuer credit rating of B mainly reflects Falkensteiner Michaeler Tourism Group AG (FMTG)’s relatively small absolute size, its comparatively undiversified corporate structure, highly leveraged balance sheet (although this has been improving over recent years) as well as Scope’s view of operational and project-related risks in the real estate division with regard to the opening of new hotels. The rating also continues to reflect Scope’s understanding that the company will continue to be able to roll over its relatively sizeable uncommitted short-term bank lines in the future.

The rating is supported by FMTG’s positive track record with regard to sales growth, as well as by its comparatively high operating margins in a peer context. Scope expects FMTG’s revenues in 2017 to have grown by about 9%, supported by good underlying tourism demand with a better capacity utilisation of existing facilities as well as by the addition of new hotel projects. The FMTG group’s EBITDAR margin (earnings before interest, taxes, depreciation, amortisation and rents) is likely to have been about 20% in 2017, which is fairly stable compared to the two past years. While the company managed to record satisfactory revenue growth in 2017, operating profit was burdened by project delays in the modernisation of the Stegersbach and Punat hotels. Rating support is further provided by Scope’s belief that the tourism industry has relatively little cyclical exposure and is protected, in Scope’s view, by medium risk regarding barriers to entry.

While sales growth – in combination with divestiture proceeds for real estate and hotels – has also translated into profit growth over recent years, debt is likely to increase in the current year due to heavy investments in Croatian hotel projects.

Scope notes FMTG’s relatively high exposure to short-term credit lines of about EUR 35m annually, consisting predominantly of short-term project-finance debt secured by real estate.

This exposure is largely uncovered by corporate liquidity and there is a notable absence of committed credit lines. However, Scope notes that committed lines are hardly used in Austria and expect the real estate security on short-term debt to keep FMTG from suffering a liquidity crisis should short-term bank lines not be extended. Scope expects FMTG to at least maintain its comparatively high EBITDAR margin.

Outlook

The Outlook is Stable and reflects Scope’s expectation that FMTG can, at the least, maintain its level of profitability and that it will be able to roll over its sizeable short-term credit lines on a yearly basis. The rating also reflects Scope’s expectation of an EBITDA interest cover of 2x or higher. A higher rating could result if the company progressed in realising projected sales and cash flow growth in the coming two years, and if the EBITDA interest cover reached above 3x, on a sustainable basis. A negative rating action could result from liquidity problems, created by either lower future revenue generation or a non-extension of existing short-term debt maturities. It could also be triggered by the EBITDA interest ratio falling below 2x on a sustained basis.

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Stress testing & cash flow analysis
No stress testing was performed. Scope performed its standard cash flow forecasting for the company.

Methodology
The methodology used for this rating(s) and/or rating outlook(s) Corporate methodology is available on www.scoperatings.com.
Historical default rates of Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Please also refer to 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 definition of default as well as definitions of rating notations can be found in Scope’s public credit rating methodologies on www.scoperatings.com.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The rated entity and/or its agents did participate in the rating process.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst Olaf Tölke, Managing Director
Person responsible for approval of the rating: Werner Stäblein, Executive Director
The ratings/outlooks were first released by Scope on 10.02.2017. The ratings/outlooks were last updated on 23.02.2018.

Potential conflicts
Please see www.scoperatings.com. for a list of potential conflicts of interest related to the issuance of credit ratings.

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