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Rating action

Scope Ratings GmbH (Scope) has today assigned a first-time issuer rating of BB/Stable to Serbia-based Elixir Group d.o.o.. Scope has also assigned a preliminary bond rating of (P) BB+ to the company’s planned RSD 4.1bn senior unsecured bond.

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

Key rating drivers

Business risk profile: BB. Elixir’s business risks are largely mitigated by i) its market positions in the chemicals segments for fertilisers and phosphoric acid, ii) its solid international distribution and iii) its moderate-to-good profitability. However, business risks are amplified by i) the industry-inherent volatility affecting input and output prices, ii) the company’s still comparatively small scale, iii) limited product diversification and iv) significant exposure to the domestic market.

Elixir, a smaller European chemicals producer with annual revenues between EUR 450-500m, holds a niche position in the European fertiliser market. While its revenue scale is modest compared to major fertiliser producers like Yara or EuroChem, Elixir benefits from its specialisation in phosphate-based fertilisers and its market share in Europe, estimated at around 3% overall and 15% for phosphate-based fertilisers. In Serbia, its domestic market, Elixir commands a leading position with a 35% share in the phosphate segment and 25% in overall fertiliser consumption.

The European fertiliser market's chronic production shortage and reliance on imports provide Elixir with competitive advantages compared to non-European competitors, including solid capacity utilisation rates and reduced transportation costs. Elixir’s ability to self-procure phosphoric acid, a critical input, further strengthens its position. Current and planned expansions in production capacity, particularly in higher-grade phosphoric acids and technical-grade monoammonium phosphates (tMAP), are expected to enhance the company’s market presence and product diversification by YE 2026. However, these positives are tempered by the volatility inherent in the industry, resulting in large price swings for input and output factors, which are difficult for Elixir to control as a price taker in the industry.

Elixir’s cash flow is moderately diversified. While the company demonstrates solid regional diversity, with exports to over 80 countries, its geographical focus remains concentrated on core markets like Serbia and the CEE region. However, Scope believes that the company has gained sufficient traction in international market, being able to absorb and substitute the potential loss of some customers. Moreover, Scope anticipates a gradual improvement in Elixir’s outreach activities and cash flow profile along the company’s ongoing investment phase which strongly aims at broadening the product mix. Fertilisers account for 65-75% of revenues, complemented by phosphoric acid (15%) and by-products such as aluminium fluoride. The currently undertaken and further planned investments will broaden the portfolio and industry exposure (products are used in agriculture, livestock, chemicals, industrial processes and food processing), reducing dependence on commoditised fertilisers and targeting higher-margin markets.

This development will likely shape Elixir’s margin profile, which Scope expects to become less volatile and to gradually expand. The company’s profitability – as measured by Scope-adjusted EBITDA margin* – is highly influenced by market dynamics. Historically, EBITDA margins have ranged from 8% to 28%, reflecting input cost volatility and inventory management challenges. Scope anticipates margins stabilising within a range of 15-20% by 2026 from about 14.5% in 2023 and 2024, supported by cost-saving measures like the new waste-to-energy plant and expanding margin-enhancing production of phosphoric acid. While industry-inherent volatility is also impacting Elixir’s margins and cash flow profile, Scope strikes that Elixir is not similarly adversely exposed to large price swings of natural gas and ammonia such as competitors with a strong exposure to nitrogen-based fertiliser production. However, the possibility of major margin fluctuations cannot be excluded in the future, which is reflected in Scope's assessment.

Financial risk profile: BB. Elixir’s financial risk profile reflects a combination of moderate leverage, moderate-to-good debt protection, and constrained cash flow coverage due to ongoing investments and working capital requirements.

Elixir’s indebtedness has increased sharply in recent years, driven by growing working capital requirements – particularly short-term debt – and its significant investment phase. While a portion of the funding needs was met internally, the company relied on external financing, including project-related loans and working capital facilities. This trend is expected to continue until 2026, with additional financing planned, such as a project-related green bond that is planned to be issued under the company’s Green Bond Framework, before debt levels stabilise at a level of around RSD 27bn as the expansionary investment phase concludes.

Scope projects Elixir’s debt/EBITDA to settle within a range of 2.7x and 3.3x in 2024-2026, compared to 3.0x at YE 2023. EBITDA growth, supported by commodity price normalisation, volume growth in core products, and cost savings, underpins this trend. The company’s leverage target of ≤3.5x and loan covenants requiring progressive leverage reductions by 2026 provide additional reassurance. However, it should be noted that the industry-specific volatility and its subsequent impact on Elixir's margins and EBITDA may result in larger deviations from the forecast corridor.

Elixir’s EBITDA/interest coverage is forecast to remain moderate-to-good, despite the company’s dominant exposure to floating-rate debt during a period of rising base rates, leading to a strong increase in average borrowing costs to around 6.4% in 2023 from 2.5% on average in 2018-2022. Historically above 5.0x, interest coverage is expected to bottom out at around 4.5x in 2024 and to improve to 5.0x-7.5x in 2025 and 2026, supported by EBITDA growth and anticipated further reductions in Serbian base rates as well as Elixir’s efforts to increase its exposure to fixed rate debt, e.g. with the planned RSD 4.1bn senior unsecured bond.

The assessment of the overall financial risk profile is somewhat constrained by the prolonged pressure on free operating cash flow (FOCF) amid the company’s expansionary capex phase and persistent working capital swings, requiring ongoing external financing. Nevertheless, Scope anticipates a return of the company’s sustained FOCF, e.g. being solidly positive, at the latest by 2027, driven by reduced capex and stable operating performance, which would solidify Elixir’s financial strength in the medium term.

Liquidity: adequate. Elixir’s liquidity is assessed as adequate, reflecting its ability to manage financial pressures, e.g. on working capital funding and substantial short-term debt exposures. Looking forward, liquidity is expected to remain solid, with projected liquidity ratios exceeding 110% in 2025 and 2026. Key factors supporting this outlook include reduced refinancing needs per annum, projected cash buffers of at least RSD 2.0bn at the end of each year, access to undrawn credit facilities totalling RSD 8.0bn, and liquid inventories that could be sold quickly if needed. Moreover, Elixir benefits from a broad base of funding partners, including domestic banks and international institutions like Unicredit, Erste Bank, and Raiffeisen.

Many, but not all, of Elixir's debt instruments contain credit-related covenants. The most significant covenants relate to (i) leverage, (ii) gearing, (iii) interest coverage, (iv) liquidity and short-term debt, (v) required notifications and approvals for additional debt placements. While Elixir has consistently met its debt covenants, a waiver was required in 2023 for a likely breach on the minimum interest coverage due to rising floating-rate debt costs and led to a reset of financial covenants for the next few years. Scope anticipates full compliance with financial covenants, albeit with potential risks linked to EBITDA volatility. Scope strongly believes that in the event of a foreseeable covenant breach, the company would engage with its lenders in an orderly manner. Given Elixir's market position in the domestic market and its track record with its funding partners, the funding banks are likely to remain committed.

Supplementary rating drivers: credit-neutral. The rating incorporates no adjustments of the standalone credit assessment for supplementary rating drivers. Scope highlights the company’s prudent approach on its financial policy as signalled by its shareholder remuneration, its commitment to financial covenants and other credit covenants, its M&A strategy and its commitment to a maximum leverage. Elixir’s governance framework, while not without challenges, does not affect the rating.

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

Outlook and rating sensitivities

The Stable Outlook incorporates Scope’s expectations about a smooth execution of the ongoing investment projects and ramp-up of production capacity, which will likely result in a gradual improvement of the EBITDA margin to more than 16% in FY2026. This supports Scope's projection that the company will keep its leverage (debt/EBITDA) below 3.5x and its interest coverage (EBITDA/interest) above 4.0x.

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

1. Improving business risk profile, e.g. by consolidating the EBITDA margin above 20% and improving diversification, a scenario considered remote at present
    
2. Improving financial risk profile, as demonstrated by a leverage ratio (debt/EBITDA) of 2.5x or lower and a cash flow cover (FOCF/debt) of around or above 5% on a sustained basis

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

1. Deteriorating financial risk profile as evidenced by leverage (debt/EBITDA) persistently above 3.5x or prolonged period of negative FOCF beyond 2026
    
2. Deteriorating business risk profile as a result of group margin not improving to above 15% over the medium term

Debt rating

Elixir plans to tap the bond market with a first-time senior unsecured green bond issue (RSD 4.1bn) in Q1 2025 under the company’s Green Bond Framework, to which Scope assigns a preliminary bond rating of (P) BB+. The company’s financial debt is primarily secured by tangible assets, including subsidiary shares, a mortgage on its waste-to-energy plant, and receivables, with approximately 20% of loans being unsecured. Scope bases its recovery analysis for the senior unsecured green bond on Elixir’s significant asset base, where property, plant, equipment (PPE), inventories, and receivables constitute over 90% of the total balance sheet. These assets support above-average recovery expectations for the senior unsecured debt.

The projected liquidation value of RSD 46bn at YE 2026 is expected to largely cover creditors’ claims of about RSD 45bn, including taxes and payables. While the recovery rate for the senior unsecured bond is estimated at an excellent level, the rating reflects constraints due to its unsecured nature and the potential increase in senior secured debt on the way to a default as well as the high price volatility for core products which can significantly impact the value of inventories and the value of claims at default.

Environmental, social and governance (ESG) factors

Elixir operates within an industry inherently exposed to significant environmental and social ESG risks, including pollution, raw material consumption, occupational safety, and regulatory compliance. However, Elixir is not considered an outlier in its sector, and its ESG strategy effectively addresses these challenges.

Elixir indirectly contributes positively to SDG Goal 2, "Zero Hunger," by producing fertilisers that support agricultural productivity amidst rising global food demand. Nevertheless, the company’s reliance on agricultural markets exposes it to climate risks, such as extreme weather events, which can impact crop yields, commodity prices, and fertiliser demand. The company operates large chemical plants and manages potentially hazardous materials but complies with ISO standards, demonstrating sound health and safety practices. Its integrated production model and circular economy approach, such as in-house phosphoric acid production and a waste-to-energy plant, help reduce its environmental footprint.

All rating actions and rated entities

Elixir Group d.o.o.

Issuer rating: BB/Stable, New

Senior unsecured RSD 4.1bn bond rating: (P) BB+, 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; Chemicals Rating Methodology, 16 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.
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: Sebastian Zank, Managing Director
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 29 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
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