Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review for Wellis Magyarország Zrt. on 28 December 2021.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

Wellis issued a HUF 10 bn senior unsecured bond priced at 3 % in February 2021. Half of the proceeds were used to refinance existing debt, while the rest is used to fund the capital expenditure plan of the company, establishing a new production and warehousing facility located in Ózd. Scope understands the investments are proceeding to plan, with the new facility expected to be commissioned by Q2 2022.

The business risk profile (assessed at BB) continues to be supported by a strong competitive position with high level of diversification in terms of geographies, customers and suppliers. The major constraints on Wellis’ business risk profile include its limited absolute size compared to its competitors, and highly concentrated product portfolio. In 2021 the company managed to increase its share on its core markets (Western-Europe and Hungary) while undergoing dynamic growth in the United States. We assume the positive development to continue over the medium term, mainly due to organic growth and increase of production capacities.

The financial risk profile (assessed at BB-) continues to reflect the robust Scope-adjusted interest coverage above 10x on a sustained basis, while the financial leverage is expected to stay on a moderate level with Scope-adjusted debt (SaD)/EBITDA comfortably below 4.0x.

The main constraint of the financial risk profile is the expected negative free operating cash flow, under pressure by the increasing working capital needs of the company and the ambitious capital investment plan undertaken over the medium term. Taking into consideration the discretionary items included in the FOCF (CAPEX, dividends) and new working capital financing being made available to the company, the liquidity position of the company is considered adequate.

The HUF 10 bn bond continues to be rated BB-, the same level as the issuer rating. Based on a hypothetical default scenario in 2023, we expect ‘average recovery’ for future senior unsecured debt holders.

The methodologies applicable for the reviewed rating and/or rating Outlook (Corporate Rating Methodology 6 July 2021; Consumer Product Methodology 30 September 2021) are available on https://www.scoperatings.com/#!methodology/list.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Istvan Braun, associate director

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