Rating action

Scope Ratings GmbH (Scope) has today placed Daniella Kft’s issuer rating of B, as well as its senior unsecured debt rating of B+, under review for a possible upgrade.

Rating rationale

The rating action follows the publication of Scope’s new Rating Methodology: Retail and Wholesale Corporates on its website on 17 March 2021. The new methodology defines more specific rating criteria with which Scope assesses an issuer’s business risk profile. These include an industry risk rating that distinguishes between cyclical and non-cyclical product categories as well as a competitive positioning evaluation that reflects: i) market shares; ii) diversification; and iii) profitability.

Scope has developed new approaches to assessing a retailer’s competitive positioning. Notably, the agency has established a proxy that enables regional markets to be ranked by retail and wholesale strength. This is done by determining a market’s growth potential, maturity and size.

Scope assesses a retailer’s long-term sustainability and ability to adapt its business model to new shopping trends by analysing its diversification in terms of products, countries, and distribution channels. These criteria are used to test a retailer’s vulnerability to macroeconomic changes and support Scope’s forecasts of market shares and profitability.

The methodology also introduces the Scope-adjusted EBITDA return on assets ratio, which allows investors to determine the asset intensity needed to achieve a certain EBITDA. This metric captures the specificities of a company’s business model in terms of its number of shops or inventory management and complements the EBITDA margin ratio already used in Scope’s profitability assessment.

The application of the new rating methodology has led Scope to place Daniella’s issuer rating under review for a possible upgrade.

The rating review will be resolved within the next six months, as soon as Scope has obtained all the information needed to resolve the review.

An upgrade by a maximum of one notch could result from a stronger assessment of Daniella’s business risk profile based on the application of the new rating methodology and supported by a continuing strength of the issuer’s operations despite the cooldown of the economy in 2020.

Long-term and short-term debt ratings

Senior unsecured debt rated B+ has also been placed under review for a possible upgrade.

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

Methodology
The methodologies used for these Credit Ratings and Outlook (Corporate Rating Methodology, 26 February 2020 and Rating Methodology: Retail and Wholesale Corporates Methodology, 17 March 2021) are available on https://www.scoperatings.com/#!methodology/list.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other 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 Credit Rating performance report at https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. 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 Ratings’ definitions of default and Credit 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 factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://www.scoperatings.com/#!methodology/list.
The Outlook indicates the most likely direction of the Credit Rating if the Credit Rating were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With the 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 Ratings: public domain, the Rated Entity and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and Outlook and the principal grounds on which the Credit Ratings and Outlook are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Rating and Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlook are UK-endorsed
Lead analyst: Adrien Guerin, Senior Analyst
Person responsible for approval of the Credit Rating: Philipp Wass, Executive Director
The Credit Rating/Outlook were first released by Scope Ratings on 11 May 2020.

Potential conflicts
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

Conditions of use/exclusion of liability
© 2021 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services GmbH, and Scope ESG Analysis 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 does not, 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 other 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 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 GmbH at Lennéstraße 5 D-10785 Berlin.