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

Rating action

Scope Ratings GmbH (Scope) has today affirmed its BB/Stable issuer rating on GVC George's Venture Capital Zrt (GVC). Scope has also affirmed its BB rating on the senior unsecured debt category.

Rating rationale

The affirmation is driven by the company’s solid development despite constrained operations during lockdowns, which clearly affected its top line last year. Although sales declined by 23% last year, EBITDA outperformed Scope’s expectations.

GVC’s business risk profile (assessed at BB-) benefits from the company’s leading position in Hungary’s fragmented outsourced catering market. Negative organic growth of around 23% in 2020 resulted from the closure of educational institutions during lockdown. The second wave of the pandemic in H2 2020 heightened the negative effect on GVC’s top-line performance. Revenues from school catering dropped by 45% YoY to HUF 5.72bn in 2020. Despite the higher-than-expected negative affect of Covid-19 on its top line, GVC managed to maintain EBITDA of HUF 2.4bn and an EBITDA margin above 10%.

While GVC’s business operations were partially interrupted by the lockdown in March and April 2021, Scope assumes that sales will rebound in the short term. Geographical and product diversification remains the main constraint on GVC’s business. However, the company’s expansion plan, initiated with the acquisition of Food Universum, will help to complement product offerings in the continually growing niche segment of dietary food.

GVC’s financial risk profile (assessed at BBB-) continues to be supported by comparably healthy operating profitability, which translates into a good underlying cash generation capability. Despite the HUF 7.0bn bond issuance in 2020, indebtedness remains in comfortable territory. The Food Universum and PVK Horog kft acquisitions will help GVC to start sales in the ready-to-eat segment from 2022 – earlier than anticipated – slightly elevating EBITDA performance starting from 2022. Scope expects leverage, as expressed by Scope-adjusted debt/EBITDA, to remain well below 3x.

A well-organised supply chain and favourable receivables collection will keep GVC’s operating cash flow stably above HUF 1.5bn, although 2022 will be an exception. Scope continues to overweight the company’s weaker business risk when assigning the overall issuer rating.

Outlook and rating-change drivers

The Stable Outlook reflects Scope’s expectation of a sales rebound in 2021, while SaD/EBITDA remain below 3.0x on a sustained basis.

A positive rating action could be warranted by an improved business risk profile, driven by increasing size, revenue stream diversification with less exposure to public tenders, and greater regional or industry coverage. However, a positive rating action is unlikely in the near future given the expansion plan for the next three years, which will only bear fruit after 2023.

A negative rating action could result from a deterioration in credit metrics, as indicated by free operating cash flow of below 10% and Scope-adjusted debt/EBITDA of above 3.5x on a sustained basis. Weak financial performance could be triggered by an adverse change in regulations, putting operating profitability under pressure, debt-financed acquisitions or higher-than-expected dividend payments.

Long-term debt rating

In the fourth quarter of 2020, GVC issued a senior unsecured corporate bond of up to HUF 7bn under the Hungarian National Bank’s scheme. Scope affirms long-term senior unsecured debt issued by GVC at BB, the same level as the issuer rating.

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/or Outlook, (Corporate Rating Methodology, 6 July 2021), 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 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/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: Zurab Zedelashvili, Senior Analyst
Person responsible for approval of the Credit Ratings: Olaf Tölke, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 22 September 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.