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 the B/Stable issuer rating of Hungarian honey packaging company Aranynektár Kft. It has also affirmed the B+ rating on Aranynektár’s senior unsecured bond (ISIN HU0000359559) that is guaranteed by Fulmer GmbH’s Hungarian Branch (Fulmer).

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

Key rating drivers

The rating of Aranynektár continues to be determined by the credit quality of its sister company Fulmer. Aranynektár packages honey for Fulmer, which not only owns all the assets used by the issuer but is also its sole customer. Management has not indicated any plans to develop the activities of Aranynektár outside the scope of Fulmer. Scope therefore considers Aranynektár to be fully dependent on Fulmer as a severance of the business link.

Business risk profile: B (unchanged). Scope’s assessment is primarily constrained by the company’s small size, low diversification and brand strength, but supported by moderate but fluctuating operating profitability.

Fulmer’s revenues are low for a consumer products company, at HUF 5.7bn in FY 2024 – financial year ending 31 May 2024 – (down from HUF 6.7bn in FY 2023). The 14.2% decrease of revenues in FY 2024 is due to the significant drop in the price of raw honey following the cancellation of customs from Ukraine and increasing Chinese imports, which resulted in lower agricultural input prices. The low size is explainable with the niche product but also points out the risks of focusing on a single product category.

Export markets are well diversified: one fourth of revenues arise from the domestic Hungarian market, the remaining from 35 export countries (Germany 14%, Japan 9%, Italy 7%, France 7%, Saudi Arabia 6% etc). Access to certain export markets is given by a single trade partner. The packaging of premium-priced honey, exported to the Middle East, has decreased after a significant export partner had financial difficulties. This resulted in partial loss of the market for Fulmer.

Customer diversification is broad by number of customers; however, LIDL has a high share of total revenue (35% in FY 2024, down from close to 50% in FY 2023) and access to certain markets is provided by LIDL. Losing LIDL as anchor customer is a significant risk and constrains the diversification assessment. In a high inflationary environment, honey is a premium product and consumer demand decreases. The order intake for Christmas 2024 and Easter 2025 is secured from retailers, which supports the rating.

In FY 2024 EBITDA margin* was 10.5% (up from 7.0% YoY) while EBITDA increased to HUF 603m (up from HUF 468m YoY). The agency expects Fulmer to keep at least a 10% EBITDA margin in FY 2025-26. Operating profitability is very volatile due to customer concentration and fluctuating costs (increasing labour cost, volatile raw honey price, increasing auxiliary material prices). Ongoing efforts to develop further export markets, automation projects and investments in solar power generation (covering 25% of own usage, to be increased to 50% on medium-term) support Scope’s expectation of at least flat operating profitability.

The development of branded labels remains weak, but Fulmer managed to increase its share of branded products to one-third of revenue in FY 2023 compared to a quarter in FY 2022 and maintained it in FY2024. Direct sales to customers have started, which can potentially boost branded sales, albeit gradually (still insignificant). The development of sales channels and branded labels would improve Fulmer’s diversification and brand strength, both of which are weak areas in Scope’s assessment.

Financial risk profile: BB+ (unchanged). Scope’s assessment is supported by good leverage and strong interest cover, but is constrained by moderate capex plans and working capital swings, leading Scope to expect volatile free operating cash flow. Due to the volatility in credit metrics that could occur for business reasons (small size, low customer diversification, a potential loss of an anchor customer), the BB+ financial risk profile only provides little support to the overall standalone credit assessment without supplementary rating drivers, which stands at B+.

Fulmer is a family-owned business that has operated with very low leverage. Prior to 2023, the company had a net cash position. With the ongoing generation change, a significant capex plan was executed, resulting in still reasonable leverage, peaking at Debt/EBITDA of 2.8x in FY 2023 (no cash netting is applied for this rating category). Leverage improved in FY 2024, in line with the agency’s expectations, as EBITDA has stabilised amid the demand and input price shocks in FY 2023. Debt/EBITDA recovered to 2.2x in FY 2024 on the back of recovering EBITDA of HUF 0.6bn (+28% YoY) and flat gross debt of HUF 1.4bn. Scope expects debt/EBITDA to remain well below 3.0x in FY 2025-2026.

Similarly, Fulmer’s leverage, as measured by funds from operations/debt, is good at 43% in FY2024 (up from 35% YoY). Scope expects Fulmer to at least maintain current levels over the next two to three years as input prices normalise, raw materials are secured and wage inflation pressures are mitigated by automation, particularly in its flagship product packaging line (honey with honeycomb).

Drawn debt at end of FY 2024 consists mainly of a HUF 1.0bn long-term bond (fixed coupon) and a HUF 0.2bn overdraft (EUR-denominated credit line of up to EUR 1.3m). The EBITDA/interest cover is therefore not under pressure from the high HUF interest rates, which remain well above 5%. Furthermore, as the deposit rates over the last few years have been well above the coupon rate of the bond, the EBITDA/interest cover has been exceptionally strong in FY 2022-2024 (due to interest received). In the forecast for FY 2025-2026, Scope has assumed no significant interest income as cash levels have decreased. Nevertheless, the EBITDA/interest cover is expected to remain strong at well above 10x.

In FY 2024, free operating cash flow/debt was negative at -31%, up from -66% in FY 2022. The negative values in FY 2023-2024 are due to lower profitability than in FY 2022, significant working capital increases (raw honey stockpiled) coupled with the previously budgeted investment programme. Scope expects this metric to improve but to remain volatile.

Liquidity: adequate (unchanged). The liquidity ratio was close to 200% at end-FY 2024 despite negative free operating cash flow because the sources were secured via the bond issuance in 2020 and hence a high cash balance was maintained. Cash balance decreased to HUF 0.2bn at end-FY 2024 as working capital expanded and investments were made.

There is no significant short-term debt. As the bond matures in 2030, there is no significant refinancing risk over the next few years. Furthermore, the liquidity ratio calculation excludes the partially unused working capital facility of HUF 0.5bn (EUR 1.3m) because it is short-term and uncommitted. However, the intra-year liquidity is volatile, and the nominal cash level is low as there are no long-term committed financing sources available.

Scope highlights that Aranynektár Kft.’s senior unsecured guaranteed bond (ISIN: HU0000359559) issued under the Hungarian National Bank’s Bond Funding for Growth Scheme has a covenant requiring the accelerated repayment of the outstanding nominal debt amount (HUF 1.0bn) if the debt rating of the bond stays below B+ for more than two years (grace period) or drops below B- (accelerated repayment within 15 days). Such a development could adversely affect the company’s liquidity profile. The rating headroom to entering the grace period is zero notches.  In addition to the rating deterioration covenant, bond covenants include a list of soft covenants, among others cross default and change of control.

There is limited rating headroom as the senior unsecured guaranteed bond is rated B+, one notch above the issuer rating. Given the limited rating headroom, the company must at least maintain its current credit profile to avoid triggering the rating-related covenant. This means worsening recovery expectation for example due to increase in secured debt may result in a downgrade of the bond which would trigger the rating deterioration covenant.

Supplementary rating drivers: -1 notch (unchanged). Scope has applied a one-notch negative adjustment to the standalone credit assessment for governance and structure due to i) structural complexity: the bond was issued by Aranynektár Kft. (a Hungarian limited liability company), but its debt is serviced by Fulmer GmbH (the Hungarian branch of a German limited liability company), as Aranynektár lent the proceeds of the bond to Fulmer (an unconsolidated sister company); ii) the small management team entailing some key person risk in finance functions and highly manual accounting and planning processes (ESG: credit-negative governance factor).

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

Outlook and rating sensitivities

The Stable Outlook reflects the good leverage after completing the HUF 2.0bn capex programme started in 2020, some loss of export volumes and an inflation shock on the EBITDA margin, from which the company is recovering. The Outlook incorporates the assumption that Fulmer will at least maintain its current financial metrics as input prices normalise and demand is predictable over the next 12 months.

The upside scenarios for the ratings and Outlook are (individually):

1. improved business risk profile (reduced customer concentration, increased size, Fulmer’s EBITDA margin of at least 10% on a sustained basis) while improving free operating cash flow/debt above 10%.
    
2. removal of the negative rating adjustment for governance and structure (remote).

The downside scenario for the ratings and Outlook is:

1. debt/EBITDA increasing above 4.0x on a sustained basis.

Debt rating

Scope has affirmed the B+ rating on the senior unsecured bond issued by Aranynektár and guaranteed by Fulmer. Scope calculates an ‘above-average’ recovery following a hypothetical default in FY 2026 and therefore maintains a one notch of uplift on the issuer rating.

In April 2020, Aranynektár issued a HUF 1.0bn senior unsecured (guaranteed) bond (ISIN: HU0000359559) through the Hungarian Central Bank’s Bond Funding for Growth Scheme. The bond proceeds were used to expand working capital as intended. The bond has a tenor of 10 years and a fixed coupon of 3.5%. Bond repayment is bullet with the full notional payable in 2030 at maturity.

Environmental, social and governance (ESG) factors

Scope notes the small size of the company and its family business nature and highlights key person risk and complex structure.

All rating actions and rated entities

Aranynektár Kft.

Issuer rating: B/Stable, affirmation

Senior unsecured guaranteed debt instrument rating (ISIN: HU0000359559): B+, affirmation

The rating was prepared following Scope’s Consumer Products Rating Methodology, 3 November 2023. The application of the Consumer Products Rating Methodology, 31 October 2024, does not have an impact on the rating.

*All credit metrics refer to Scope-adjusted figures.

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 and Outlook, (General Corporate Rating Methodology, 16 October 2023; Consumer Products Rating Methodology, 31 October 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.
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 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 Outlook and the principal grounds on which the Credit Ratings and Outlook are based. Following that review, the Credit Ratings and Outlook were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlook are UK-endorsed.
Lead analyst: Barna Szabolcs Gáspár, Director
Person responsible for approval of the Credit Ratings: Sebastian Zank, Managing Director
The issuer Credit Rating/Outlook was first released by Scope Ratings on 30 January 2020. The Credit Rating/Outlook was last updated on 9 November 2023.
The bond's Credit Rating was first released by Scope Ratings on 25 March 2020. The Credit Rating was last updated on 9 November 2023. 

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.