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 placed the BBB issuer rating of Fnac Darty S.A. under review for a developing outcome. Scope has also placed the BBB senior unsecured debt rating and the S-2 short-term debt rating under review for a developing outcome.

The rating action follows Fnac Darty’s announced intention to acquire Italy’s Unieuro for around EUR 249m, which could improve the issuer’s business risk profile at the cost of higher leverage.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

Scope places Fnac Darty’s ratings under review for a developing outcome following the issuer’s announcement on 16 July 2024 to lunch a public offer to buy Unieuro, Italy’s leading consumer electronics retailer¹. The transaction is expected to close in Q4 2024, subject to shareholders and regulatory approval. The issuer intends to buy 100% of Unieuro for around EUR 249m together with an affiliate of VESA Investments (which owns 30% of Fnac Darty), through an ad-hoc investment vehicle, owned 51% by Fnac Darty. The issuer will finance the deal through EUR 56m in cash and the equivalent of EUR 60m in newly issued shares (while VESA will finance the remaining EUR 122m in cash), reflecting Fnac Darty’s prudent leverage strategy.

Business risk profile: BB+. The acquisition would make Fnac Darty the leader in the Italian consumer electronics market, where Unieuro currently has a market share of around 17%, improving Fnac Darty’s market positioning and increasing its sales volume (combined sales of around EUR 10.5bn in the last full financial year).

The transaction is also expected to improve the diversification profile. While Fnac Darty currently generates 83% of its sales in France, the share of domestic sales would fall to around 60% after the acquisition. This would be credit positive as it would reduce exposure to a single country and therefore the risk of cash flow volatility linked to economic downturns or local consumer behaviour.

The post-acquisition outlook for profit margins is uncertain, primarily due to Unieuro’s current lower Scope-adjusted EBITDA margin* compared to Fnac Darty’s (4.6% in FY 2023/24² vs 6.6% of Fnac Darty in 2023). This disparity could initially exert downward pressure on profit margins. However, the integration process offers opportunities to realize synergies (estimated by Fnac Darty at around EUR 20m per year from 2025) linked to process optimization, centralization and better pricing power. However, with the consumer electronics market in France still showing a weak growth (Fnac Darty’s H1 2024 sales were up by 1.4%³) and consumer confidence still low, particularly in Italy where Unieuro sales were down by 6.3% in the FY 2023/24 and 7% in H1 2024⁴, Scope does not expect significant EBITDA growth in the short term.

Financial risk profile: BBB+. Based on current information, Scope cannot judge the transaction's effects on the financial risk profile. Although the issuer will finance the transaction without issuing new debt, reflecting a cautious approach to leverage development, there is a risk that the leverage of the combined entity could increase due to the higher debt level of Unieuro with a Debt/EBITDA of 2.8x in FY 2023/24 (Fnac Darty: 2.0x in 2023), and remain above Scope’s rating downgrade trigger (Debt/EBITDA above 2.0x), at least temporarily, with a return to below 2.0x highly dependent on the issuer’s ability to deliver synergies quickly and sales of the Italian business to recover.

Liquidity: adequate. The transactions impact on liquidity is expected to be neutral due to the limited cash disbursement for the acquisition and the very limited short-term debt at Unieuro.

Supplementary rating drivers: credit neutral. Supplementary rating drivers have no impact on the issuer rating.

Under review for developing outcome

Scope has placed all Fnac Darty’s rating under review for a developing outcome and will closely follow developments on the proposed transaction.

The ratings could be affirmed if the transaction is cancelled, or if the transaction is executed with overall credit-neutral implications.

Scope could upgrade the issuer rating by one notch if the transaction results in an improved business risk profile due to better geographical diversification of revenues, while maintaining a stable level of profitability and a leverage ratio (Debt/EBITDA) that remains at or below 2.0x on a sustained basis.

Scope could downgrade the rating by one notch if the acquisition were to result in a Debt/EBITDA ratio of more than 2.0x on a sustained basis, which could be the result of a prolonged period of weaker profitability post-closing and higher-than-expected integration costs.

Debt ratings

Driven by the rating action on the issuer rating, Scopes also places the S-2 short-term debt rating and the BBB senior unsecured debt rating under review for developing outcome.

Environmental, social and governance (ESG) factors

Overall, ESG factors have no impact on this credit rating action.

All rating actions and rated entities

Fnac Darty S.A

Issuer rating: BBB under review for developing outcome

Senior unsecured debt rating: BBB under review for developing outcome

Short-term debt rating: S-2 under review for developing outcome

*All credit metrics refer to Scope-adjusted figures.

Rating driver references
1. Fnac Darty envisaged acquisition of Unieuro 
2. Unieuro 2023/24 audited reports
3. Fnac Darty H1 2024 preliminary results
4. Unieuro H1 2024 preliminary results

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, (General Corporate Rating Methodology, 16 October 2023; Retail and Wholesale Rating Methodology, 26 April 2024), are 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.

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 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 these 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 the principal grounds on which the Credit Ratings are based. Following that review, the Credit Ratings were not amended before being issued.

Regulatory disclosures
These Credit Ratings are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings are UK-endorsed.
Lead analyst: Claudia Aquino, Associate Director
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 18 February 2019. The Credit Ratings/Outlook were last updated on 23 February 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use/exclusion of liability
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis 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.