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Rating action

Scope Ratings GmbH (Scope) has today assigned a first-time issuer rating of BBB-/Stable, a short-term debt rating of S-2 and a long-term senior unsecured debt rating of BBB- to HORNBACH Holding AG & Co. KGaA.

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

Key rating drivers

Business risk profile: BBB-. HORNBACH’s business risk profile benefits from its: i) high market share in large and mature markets with good growth prospects and strong long-term fundamentals in key end-markets; and ii) broad geographic diversification, with approximately half of sales generated outside Germany, as well as an established omni-channel set-up, providing strong access to customers and supporting stable cash flows, thereby minimising operational risk. Comparatively weak profitability due to high asset intensity (own real estate and high inventory levels) limits the business risk profile.

HORNBACH benefits from a moderate market position (top five player in European DIY and top three in its main markets). It mainly operates in large and mature markets, which ensures high market visibility and stable cash flow due to limited supply risk, an established infrastructure and relatively high barriers to entry for new players.

Scope sees good prospects for continued sales growth in the future (FY 2023/24: EUR 6.2bn, down 1.6% YoY; 9M 2024/25: EUR 5.0bn, up 0.5% YoY), leading to improved market shares. This is based on Scope’s expectation that HORNBACH's end-markets will grow due to the increasing need to renovate existing buildings in Europe in order i) to achieve climate neutrality by 2050; ii) to meet higher maintenance requirements to counter damage caused by extreme weather conditions; and iii) to meet societal demand for barrier-free and adequate housing. In addition, Scope believes that future sales growth will be supported by HORNBACH's strong embeddedness in local communities, providing an ecosystem that brings customers and professionals together (B2B2C) to accommodate the continued shift to DIFM (Do-it-for-Me) from DIY, as fewer people are tempted to undertake major projects themselves.

HORNBACH has well-established distribution channels (online, bricks-and-mortar B2C and B2B), including the predominately B2C division HORNBACH Baumarkt (93.8% of sales in FY 2023/24). This benefits from an established integrated retail concept comprising click & collect and direct delivery, which commenced operations in 2010 and contributed 12.7% to HORNBACH Baumarkt's sales in FY 2023/24 – and the predominantly B2B division (HORNBACH Baustoff Union), which contributed 6.2%.

HORNBACH operates 210 PoS (including 171 HORNBACH Baumarkt locations with 2.1 million sq m of sales area) in ten countries (nine HORNBACH Baumarkt locations). The main markets are Germany (53% of HORNBACH Baumarkt’s sales area at the end of February 2024 and 48% of HORNBACH Baumarkt’s sales in FY 2023/24), the Netherlands (12% of sales area) and Austria (8%). The remainder is spread evenly across the Czech Republic, Romania, Switzerland, Sweden, Slovakia and Luxembourg. The broad diversification of sales limits cash flow volatility related to demand patterns and political and economic risks in a specific country. It also provides the necessary backing to expand reach, either to increase market share in existing markets or to enter new ones. Scope expects further growth in international sales, supported by: i) HORNBACH's strong market positions; ii) further planned PoS openings; and iii) continued growth momentum outside Germany.

Profitability, as measured by Scope's adjusted EBITDA margin*, is strong compared to other retail peers and has been in the 8-10% range in recent years (FY 2023/24: 8.1%, down 0.1pp YoY; last twelve months to end-November 2024: 8.6%). Scope expects the EBITDA margin to remain at around 8% going forward, supported by: i) lower inflationary pressures; ii) a solid contribution from margin-accretive private label products (FY 2023/24: 25%); and iii) high on-shelf availability, which helps to retain customers and outperform peers in terms of sales per sq m and like-for-like sales growth. All of this helps to largely mitigate a further sharp increase in: i) Selling, General and Administrative expenses in FY 2024/25; as well as ii) higher store costs related to planned openings in FY 2024/25 to FY 2026/27.

However, the EBITDA return on assets is modest and has historically been between 13% and 16% (FY 2023/24: 12.7%, down 0.4pp YoY). This is mainly due to: i) high shelf availability leading to comparatively high working capital requirements on average; and ii) the large PoS network with 171 locations, of which 104 (62% based on sales area) were owned by HORNBACH at the end of February 2024. Scope does not expect any significant change in the asset intensity of the business as the group's strategy remains unchanged.

Financial risk profile: BBB-. HORNBACH's financial risk profile is underpinned by robust cash conversion, which helps to maintain the current good level of leverage, as well as strong interest cover.

HORNBACH has a healthy free operating cash flow (FOCF). This is due to its non-cyclical business and good working capital management to cope with the seasonality of the business. It is further supported by a reverse factoring programme, which is typically used during the high stocking season between December and February (EUR 149m at the end of February 2024). HORNBACH also benefits from strong cash generation, which enables it to cover high shelf availability and capex requirements without external financing needs. Scope expects FOCF to remain at break-even, despite a significant increase in capex (maintenance and expansion) to around EUR 650m for the three years to FY 2026/27 (compared to EUR 530m for the previous three years), which will ultimately help to keep debt stable at between EUR 1.2bn to EUR 1.4bn (end-February 2024: EUR 1.2bn). FOCF/debt has fluctuated between 5-15% recently, with a sustainable level seen at around 5% (2023/24: 15%; up 5pp YoY).

EBITDA interest cover is strong and has remained above 7x in recent years (FY 2023/24: 10.8x). This is due to the low interest rate environment (weighted average cost of debt of 3.2% in FY 2023/24; up 80bps YoY) and relatively stable debt of EUR 1.2bn to EUR 1.4bn over the last five years. Scope expects EBITDA interest cover to remain comfortably above 7x - though declining - thanks to the broadly stable debt and EBITDA growth. This will help to manage the increasing interest burden, as the changed interest rate environment is expected to have pushed borrowing costs to a sustainable level two times higher than in H1 2022.

Leverage has stabilised at around 2.5x debt/EBITDA in recent years (FY 2023/24: 2.5x, down 0.2x YoY). Going forward, Scope expects leverage to remain at around 2.5x, supported by no significant external financing needs. EBITDA is expected to grow at a CAGR of 2.5% over the next three years, mainly driven by stabilised profitability and top line growth from new store openings as well as improving consumer confidence.

Scope-adjusted funds from operations/debt have fluctuated between 25-30% in recent years (2023/24: 31%, up 3pp YoY). They are expected to remain around 30%, despite the anticipated increase in interest payments, thanks to sales and EBITDA growth and a broadly stable tax burden.

Liquidity: adequate. Liquidity is adequate. Cash sources (EUR 341m in unrestricted cash and a EUR 450m open committed credit line both at end-February 2024; EUR 249m in Scope-adjusted free operating cash flow forecasted between March 2024 and end-February 2027) cover uses (debt due in FY 2024/25: EUR 90m; FY 2025/26: EUR 134m and FY 2026/27: EUR 266m) by more than 200%.

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

Outlook and rating sensitivities

The Stable Outlook is based on continued growth of the company's top line (CAGR of 3-4%) and EBITDA (CAGR of 2-3%), helping leverage remain at current levels (debt/EBITDA of around 2.5x) in the coming years. The Outlook includes capex of around EUR 650m, dividend payments of about EUR 125m and a stabilisation of the EBITDA margin at around 8% - all for the three years to end-February 2027.

The upside scenario for the ratings and Outlook is:

• Debt/EBITDA of significantly below 2x on a sustained basis.

The downside scenario for the ratings and Outlook is:

• Debt/EBITDA of significantly above 3x on a sustained basis.

Debt ratings

The assigned S-2 short term debt rating is based on the underlying BBB-/Stable issuer rating. It reflects the company's better-than-adequate internal and external liquidity, better-than-adequate banking relationships as well as an adequate standing in the capital markets.

The senior unsecured debt is rated BBB-, the same level as the issuer rating.

Environmental, social and governance (ESG) factors

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

All rating actions and rated entities

HORNBACH Holding AG & Co. KGaA

Issuer rating: BBB-/Stable, new

Short-term debt rating: S-2, new

Senior unsecured debt rating: BBB-, new

*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/or Outlook, (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, Outlook 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, 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/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the Credit Ratings and/or Outlook 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: Philipp Wass, Managing Director
Person responsible for approval of the Credit Ratings: Sebastian Zank, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 20 January 2025.

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
© 2025 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Innovation Lab 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.