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Rating action

Scope Ratings GmbH (Scope) has affirmed the issuer rating of BBB-/Stable on Germany-based investment holding Franz Haniel & Cie. GmbH, the senior unsecured debt rating at BBB- and the short-term debt rating at S-2.

Scope has also affirmed the issuer rating of BBB-/Stable, the senior unsecured debt rating of BBB- and the short-term debt rating of S-2 on Haniel’s financing subsidiary Haniel Finance GmbH, although no long-term debt is currently outstanding.

Rating rationale

Haniel’s rating reflects its finetuned investment strategy that focuses on investments in controlling stakes of mainly mature SMEs. More specifically, such investments need to match a business purpose in line with Haniel’s ‘People, Planet, Progress’ approach. This strategy focuses on companies and investments that serve global and sustainable megatrends in the areas of: i) health and wellbeing; ii) the circular economy; iii) climate change; and iv) robotics & automation (ESG factor that is likely to support a sustained business profile).

The portfolio is still in development and counts seven core investments as of April 2023. It has taken a stable trend in 2022, compared to higher growth in the years before. While the portfolio is exposed to a number of diversified industries with only a limited correlation which supports credit quality, net asset value (down 18% YoY as of end-2022) was not able to follow previous years’ stronger growth. Growth was stifled by KMK Kinderzimmer (provider of early childhood education) and Optimar (automated fish handling systems) not performing well in 2022, due respectively to a slow recovery from the Covid-19 pandemic and the Russia-Ukraine war. In addition, lower valuation multiples applied across the portfolio. Optimar, which is now a management buyout, was moved from core investments to ‘other investments’ (together with Metro and Ceconomy stakes, as well as Haniel’s mid-term financial assets, intercompany loans and its own shares). There was no improvement on diversification among dividend- and income-generating assets in 2022. The bulk of both value and income generation still rests with business services company CWS.

Dividend income grew by about 10% YoY in 2022 thanks to a one-off contribution from Ceconomy, the continuation of payments from BekaertDeslee as well as a strong contribution from Takkt following payment of a special dividend in 2022. None of the new investments from the last two years have yet contributed to the holding’s income. Haniel portfolio’s dependence on CWS’ performance for the next few years is reinforced by the high likelihood that there will be no dividends from new investments in the short term. Over the longer term, however, Scope is confident that Haniel will gain dividend diversity thanks to its good investment headroom.

As long as Haniel does not need to sell assets and given a sufficient total cost coverage and adequate liquidity profile, Haniel's low exposure to liquid/listed portfolio companies does not affect the rating.

Haniel’s credit strength is underpinned by its resilient recurring cost coverage of more than 1x. This ratio stood at 1.5x in 2021 – a year characterised by strong dividend income and strong investment activity – and decreased to 1.0x in 2022 due to high one-off costs (mainly for shareholder remuneration) and limited dividend growth. Scope forecasts that Haniel will retain full cost coverage over the next three years, achieving a higher cost coverage again in 2023, thus supporting the credit rating. In 2022, dividend growth was restrained by lower contributions from Metro and a continued loss situation at Rovema. Haniel’s two main sources of divided income (CWS and Takkt) are resilient enough to generate at least stable dividend payouts. While 2022 was weak on the cost side, mainly due to higher shareholder remuneration, Scope expects that this trend will reverse in 2023 and that dividend payouts will provide further upside.

Haniel’s indebtedness is still very comfortable, with a comparatively low Scope-adjusted loan/value ratio of about 14% as of year-end 2022. While the ratio has deteriorated since its low of 3% in 2020, due to Haniel’s partly debt-funded investment activity in 2021 and the lower valuation as outlined above in 2022, it is still within the limits of an investment grade rating, despite the value deterioration of Haniel’s portfolio to EUR 5bn (from EUR 6bn in 2021). This downside in value was caused by some companies’ negative exposure to various crises (KMK suffered from the pandemic and Optimar from the Russia-Ukraine war) as well as by applying lower multiples in general, reflecting increased uncertainty in the market compared to 2021. The holding company’s relatively low net debt exposure affords it headroom for additional debt (that Scope estimates at about EUR 0.8bn) that can be used for portfolio additions or to support portfolio companies through cash injections funded at the holding level, before reaching its net debt ceiling of EUR 1bn. In light of Haniel’s slow portfolio ramp-up, Scope anticipates no major changes to portfolio market gearing. The holding company’s relative indebtedness remains strongly exposed to market volatility via moving multiples used for valuing non-listed portfolio companies. Therefore, Haniel’s portfolio market value would have to deteriorate by another 20% before reaching a Scope-adjusted loan/value ratio of 25%. As such, Haniel’s financial position still remains comfortable in the context of its investment grade rating.

Haniel’s liquidity continues to be strong despite short-term debt having increased to EUR 578m in 2022 (up by EUR 114m at the end of 2021) which needs to be covered in 2023. Slightly more than half of this debt is related to short-term bank loans and the remainder to Commercial Paper drawings, while the (short-term) shareholder loan exposure from the Haniel family members shrank slightly. Incorporating an expected total coverage of above 1.0x over the medium term and an undrawn amount of EUR 755m from committed multi-year credit facilities, these maturities are comfortably covered with basically no refinancing risks that would necessitate the sale of shareholdings.

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating-change drivers

Scope has maintained the Stable Outlook, reflecting the expectation that Haniel will keep sustained total cost coverage within a range of 1.0-1.3x. This implies that there is still significant leeway embedded in Scope’s base case assumptions, such that recurring cash inflows need to drop by about 35% to be unable to fully cover recurring holding company costs, including expected shareholder remuneration (i.e. before total cost coverage drops to below 1.0x).

A positive rating action could be warranted if total cost coverage were above 1.3x on a sustained basis and bolstered by a more granular recurring cash inflow from portfolio companies. This could be the result of more portfolio companies entering into dividend payment status or profit sharing (which is currently only the case for the three strongest ventures).

A negative rating action could result if the holding company exceeded its communicated net debt target without offsetting it through additional dividend streams from new investee companies, or if total cost coverage deteriorated to below 1.0x

Long-term and short-term debt ratings

Haniel’s financing subsidiary Haniel Finance Deutschland GmbH does not have any outstanding public debt.

The rating for senior unsecured debt issued by either or Franz Haniel & Cie. GmbH or Haniel Finance Deutschland GmbH is affirmed at BBB-, the level of the issuer rating.

Haniel’s short-term rating is affirmed at S-2. This reflects Scope’s view on the company’s robust liquidity profile, incorporating internal and external liquidity sources. It also reflects Haniel’s good standing in public and private debt markets and well-established banking relationships, partly evidenced by the broad mix of committed long-term credit lines from different banks.

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 Outlooks, (General Corporate Rating Methodology, 15 July 2022), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. 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-governance/definitions-and-scales. 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://scoperatings.com/governance-and-policies/rating-governance/methodologies.
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 and the Rated Entity.
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 Outlooks and the principal grounds on which the Credit Ratings and Outlooks are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlooks are UK-endorsed.
Lead analyst: Olaf Tölke, Managing Director
Person responsible for approval of the Credit Ratings: Philipp Wass, Executive Director
The Franz Haniel & Cie GmbH Issuer Credit Rating/Outlook was first released by Scope Ratings on 23 February 2016. The Credit Rating/Outlook was last updated on 25 April 2022.
The Franz Haniel & Cie GmbH short-term Credit Rating and Senior unsecured debt Credit Rating were first released by Scope Ratings on 21 February 2017. The Credit Ratings were last updated on 25 April 2022.
Haniel Finance Deutschland GmbH Issuer Credit Rating/Outlook was first released by Scope Ratings on 24 February 2017. The Credit Rating/Outlook was last updated on 25 April 2022.
Haniel Finance Deutschland GmbH short-term Credit Rating and Senior unsecured debt Credit Rating were first released by Scope Ratings on 27 June 2018. The Credit Ratings were last updated on 25 April 2022.

Potential conflicts
See http://www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings.

Conditions of use/exclusion of liability
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