The latest information on the rating, including rating reports and related methodologies, is available on this LINK.

Rating action

Scope Ratings affirms its BB-/Stable issuer rating on Cerbona Élelmiszergyártó Kft. Simultaneously, Scope withdraws the issuer rating/outlook and also the senior unsecured debt rating for business reasons to cease analytical coverage.

Rating rationale

The affirmation reflects Cerbona’s weak business risk profile, which is mainly offset by stronger credit metrics.

In terms of its business risk profile, Cerbona is a market leader in Hungary, holding one of the top five positions in nearly every product category it offers. Business risk profile is constrained by the company’s small scale and it remains vulnerable to stiff competition. The company is working on diversification by producing different cereal-related products and following the trend for gluten-free, high-protein and sugar-free products. However, Cerbona is dependent on its muesli bar products. The brand is largely recognised domestically and exporting to other European countries remains challenging. To increase its revenue, Cerbona is using different sales channels and selling a small proportion of products as private labels to retailers at prices which are affordable for consumers. Cerbona’s profitability is stable (EBITDA margin of around 10%-12%), but low compared to fast moving consumer goods peers. While it is in a growth phase, the company faces the challenge of cost increases related to personnel and raw materials. The Covid-19 pandemic has obliged Cerbona to adapt its growth plan and undergo cost-cutting measures to address slowing demand.

As regards its financial risk profile, Cerbona has relatively strong credit metrics for a rather new company focusing on the generation of positive cash flow and depending mainly on bank loans. While leverage – as measured by Scope-adjusted debt/EBITDA – is expected to rise following the withdrawal of bank loans and reduced EBITDA, it is likely to remain below 2.5x going forward. As the company remains in a growth phase, credit ratios are sensitive to events such as a drop in EBITDA. In the wake of the pandemic, Cerbona has decided to reduce its capital expenditure in the coming years, with the exception of 2020 in which the warehouse project needed to be completed. Instead of issuing the planned HUF 1bn bond under the Hungarian national bank’s Bond Funding for Growth Scheme, the company has opted to take out bank loans for smaller amounts. The rating is withdrawn at the request of the investor (the Hungarian national bank).

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

Methodology
The methodologies used for this rating(s) and/or rating outlook(s) (Corporate rating methodology 26 February 2020, Consumer Products methodology 30 September 2020) are available on https://www.scoperatings.com/#!methodology/list.
Information on the meaning of each rating category, including definitions of default and recoveries can be viewed in the “Rating Definitions - Credit Ratings and Ancillary Services” published on https://www.scoperatings.com/#!governance-and-policies/rating-scale. Historical default rates of the entities rated by 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 definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale. Guidance and information on how Environmental, Social or Governance factors (ESG factor) are incorporated into the rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list. 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 rating was not requested by the rated entity or its agents. The rating process was conducted:
With Rated Entity or Related Third Party Participation    YES
With Access to Internal Documents                                YES
With Access to Management                                          YES
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity, and Scope internal sources.
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, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Azza Chammem, senior analyst
Person responsible for approval of the rating: Olaf Tolke, managing director
The ratings/outlooks were first released by Scope on 20 December 2019.

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

Conditions of use / exclusion of liability
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