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Rating action

Scope Ratings GmbH (Scope) assigns Waberer’s International Nyrt. an issuer rating of B+/Stable and a senior unsecured debt rating of B+.

Rating rationale

The issuer’s business risk profile is driven by the company’s leading market position as of the top 5 road freight logistics players in Europe. Moreover, issuer benefits from diversified operating profit contributions from its other segments, namely regional contract logistics, warehousing and e-commerce solutions as well as from its insurance segment. Those segments provide rather stable cash flows based on multi-year contracts, mitigating potential volatility of the road freight core business. The blended industry risk profile of B+ is constrained by the large exposure to the road logistics sector, which shows very low entry barriers as evidenced by the high market fragmentation, paired with medium cyclicality.

Looking at operating margin on EBIT-level, one can see that the group has been hit by a severe drop in operating margin from 2018 to 2020, which has been - among other factors - the result of weakening fleet utilizationas well as an aging fleet that was not as fuel efficient as in the past. Historically, Waberer’s has shown EBIT-margins of 3% to 4% up to 2018. As a result of the comprehensive restructuring carried out in 2020 (introduction of “trade lane model”), the issuer has been able to return to EBIT-neutral figures in the ITS segment while showing stable or growing EBIT contributions from all other segments within the first quarter of 2021. Group operating profitability (EBITDA-margin) has been in a range of 6% to 12% within recent business years and is expected to return to pre-crisis numbers of 11% to 12% over the course of the next two business years. Q1 2021 group EBITDA-margin amounted to 11.7% again. While Scope sees mid-term upside in the profitability assessment once the current level has been shown on a sustained basis, Scope deems profitability as a rating constraint at this point due to the recent losses of the company.

All in all, the business risk profile is assessed as B+.

Looking at the financial risk profile of the issuer, which is deemed B+, there is a mixed picture. Financial leverage as measured by Scope-adjusted-Debt/Scope-adjusted EBITDA has been increasing over the past business years up to a level of 4.6x as of year-end 2019. Within the second half of 2020 and the first months of 2021, a visible swing in financial performance has brought Scope-adjusted debt/EBITDA leverage back to below 4.0x. Scope expects the issuer to show leverage in a range of 3.0x to 3.5x for the next two business years, based on Scope’s financial base case that incorporates the successful placement of a EUR 166m senior unsecured debt instrument within 1H 2021. The planned investments from the proceeds of this debt instrument will lead to significantly negative free operating cash flows for the next years.

Scope expects the recovery of revenues and hence operating profits that has been materializing throughout the last months to continue and gradually bring back operating cash profits to a level of c. 4% EBIT-margin and c. 12% Scope-adjusted EBITDA-margin over the course of the next two years.

Liquidity is deemed adequate thanks to only limited short-term financial maturities after the assumed senior unsecured debt issuance that will be in part used to refinance short-term debt.

Outlook and rating change drivers

The outlook for Waberer’s International Nyrt. is stable and is based on the assumption of a continued recovery of its International Transport Segment (ITS) in line with Scope’s financial base case forecast. This incorporates financial leverage of 3.0x to 3.5x going forward. Moreover, this forecast is based on the assumption that the company is able to successfully issue a HUF 60bn senior unsecured bond within 2021 with proceeds earmarked for the acquisition of trucks, for infrastructure related investments at the core logistics segments, potential M&A and the refinancing of debt.

A positive rating may be warranted if the company would be able to generate operating profits significantly exceeding Scope’s financial forecast and reduce financial leverage to less than 3.0x on a sustained basis while maintaining its current business risk profile.

A negative rating action might be warranted if the company either shows financial leverage of more than 4.0x SaD/EBITDA on a sustained basis or shows a material deterioration of its business risk profile, e.g. by material negative changes in diversification. A financial leverage exceeding 4.0x could e.g. be triggered by a significant deterioration of operating profitability in its core segments or substantial debt-financed investment beyond Scope’s financial base case.

Long-term and short-term debt ratings

Scope assigns an ‘B+’ debt instrument rating to senior unsecured debt of Waberer’s International Nyrt.. This instrument rating is based on a hypothetical liquidation scenario as of year-end 2022, in which Scope computed an average recovery for senior unsecured debt holders based on Scope’s assumptions of attainable liquidation values.

The issuer plans to issue a HUF 60bn senior unsecured corporate bond under the MNB Bond Funding for Growth Scheme. The bond is expected to have a 10-year or 15-year tenor with amortisation starting in the 5th year and a 50% bullet repayment at maturity. The coupon will be fixed and payable on an annual basis. Proceeds are earmarked for the acquisition of trucks, for infrastructure related investments at the core logistics segments, potential M&A and the refinancing of debt.

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

Methodology
The methodology used for these Credit Ratings and Outlook, (Corporate Rating Methodology, 26 February 2020), is available on https://www.scoperatings.com/#!methodology/list.
Scope Ratings GmbH and Scope Ratings UK Limited apply the same methodologies/models and key rating assumptions for their credit rating services, while Scope Hamburg GmbH’s methodologies/models and key rating assumptions are different from those of Scope Ratings GmbH and Scope Ratings UK Limited.
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 Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity, third parties 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/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed
Lead analyst: Denis Kuhn, Associate Director
Person responsible for approval of the Credit Ratings: Henrik Blymke, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 10 June 2021.

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
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