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Rating action

Scope Ratings GmbH (Scope) has today affirmed the BB/Stable issuer rating on Germany’s industrial conglomerate Hörmann Industries GmbH. Scope has also affirmed the BB rating on the group’s senior unsecured debt.

The affirmation reflects expected leverage* in 2024-25, despite weaker operating performance in 2024, supported by an anticipated increase in cash on the balance sheet due to the very solid cash generation foreseen for Q4 2024. The affirmation is also based on the solid backlog in Communication and Intralogistics at the end of 2024. Despite the upward revision of Hörmann’s financial risk profile, the affirmation reflects business risk profile overweighting. This is because risks are more related to Hörmann's business risk profile due to low diversification and mainly project-based business.

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

Key rating drivers

Business risk profile: B+ (unchanged). The group’s business risk profile continues to reflect a moderate market position, particularly supported by the good position of Communication in profitable niche markets and solid order development in Communication and Intralogistics in 2024. However, business risks are amplified by: i) the Automotive division’s relatively weak market position, as indicated by weak profitability; ii) a high dependence on subsidiary Funkwerk for cash flow and profitability; iii) concentration on individual customers; iv) weak end-market diversification; and v) a weak international presence.

Based on 9M 2024 revenue figures (down 14.3% to EUR 487m), Scope anticipates revenue of around EUR 680m in 2024 (down 18% YoY). This weak revenue performance reflects a significant decline in Automotive (down 24% YoY in 9M 2024) and Intralogistics (down 36% YoY in 9M 2024), partially offset by higher revenue in Communication (up 20% YoY in 9M 2024). The higher revenue in Communication (up 20% YoY in 9M 2024) was driven by consolidation effects from Elektrotechnik und Elektronik Oltmann GmbH (acquired in March 2024) and the Polish company Radionika Sp.z o.o. (acquired in June 2023), in addition to solid overall business development. For 2025, Scope has factored in revenue of around EUR 700m, up 3% YoY on the back of higher expected revenue in Communication and Intralogistics, driven by increased order backlogs at year-end 2024.

As a result of the adjusted revenue expectation, Scope has revised its EBITDA forecast to around EUR 50m in 2024 from EUR 55m previously. A larger decline will be prevented by slightly higher projected profitability (revised to around 7% from about 6.5%), driven by a higher expected gross profit margin thanks to the better product mix and compensation payments from the group’s main customer. Scope projects that the gross profit margin will remain robust in 2025, supported by: i) a favourable product mix due to less Automotive revenue; ii) agreed price increases with the main Automotive customers; and iii) a further reduction in temporary labour. Nevertheless, due to the revised revenue expectation, the agency has also adjusted its 2025 EBITDA expectation to around EUR 50m from EUR 55m previously.

Financial risk profile: BBB (revised from BBB-). The upward revision of Hörmann’s financial risk profile is based on: i) Scope’s debt adjustment to reflect new information on operating leases; and ii) Scope’s revised expectation for Hörmann’s leverage in 2024-26, given the high anticipated cash balances at-year-end 2024. Hörmann’s financial risk profile continues to be supported by strong debt protection. It is constrained by volatile cash flow cover due to net working capital (NWC) fluctuations.

The issuance of a promissory note loan in the amount of EUR 17.5m increased Hörmann’s reported financial debt to EUR 70.7m at end-September 2024, from EUR 55.7m at end-December 2023. In order to calculate credit metrics, Scope adjusted reported debt by: i) pensions in the amount of EUR 19m; and ii) leases in the amount of EUR 25m. In addition, Scope assumes that 50% of Funkwerk’s cash is restricted. The agency expects debt of around EUR 52m at YE 2024. The downward revision from its previous expectation of EUR 95m reflects a lower amount for operating leases (EUR 25m vs EUR 49m previously) and a higher projected cash balance at year-end 2024 thanks to higher expected free operating cash flow (FOCF) and lower M&A cash outflow compared to last year's assumptions. Scope foresees debt increasing slightly to around EUR 59m at YE 2025, mainly due to its adjustment for higher expected cash at Funkwerk and higher expected leases. Management has informed the agency that Hörmann plans to continue to make small add-on acquisitions with a focus on the Communication and Intralogistics segments. Larger M&A transactions are possible, but not currently in the pipeline. Scope has factored around EUR 5m per year for M&A into its forecast.

The rating agency expects Hörmann's leverage, as measured by the debt/EBITDA ratio, to remain between 1.0 and 1.5x over the 2024-26 period, tending towards the upper end of this range in 2026 as a result of the assumed increase in debt.

In 2024, Scope expects Hörmann to book exceptionally high interest income of around EUR 4m from the fixed-term deposit of its high level of liquid funds. Overall, Scope expects interest costs (including interest on leasing) of around EUR 4m in 2024 and interest cover of about 11x. For 2025-26, Scope has factored in higher interest costs of around EUR 7m due to recent refinancing at higher interest rates but still foresees a continued strong interest coverage ratio of above 7x.

Scope’s assessment of the overall financial risk profile is somewhat constrained by volatile FOCF, in particular as a result of volatile NWC. It is worth noting that Funkwerk has generated most, and at times all, of the group's cash flow over the last four years, which is a credit weakness. In 2024, Scope expects NWC to decrease slightly, mainly as a result of significant prepayments for new orders received in Q4 2024 and the new factoring agreement. Scope has revised its expectation for net capex in 2024 to EUR -12m from EUR -19m due to high proceeds, mainly from the sale and lease back transaction. Overall, the agency projects positive FOCF in 2024 at around EUR 13m (previous projection: EUR -1m). As the construction work at Funkwerk's headquarters in Kölleda and the reorganisation of frame-length production have been completed, Scope expects capex to level off to EUR 14.0m in 2025. However, the agency expects a slight increase in NWC in 2025, driven by solid expected business in NWC-heavy Communication, and projects that FOCF will decline to around EUR 8m in 2025. In line with the FOCF expected in 2024-25, Scope projects positive cash flow coverage in these years.

Liquidity: adequate (unchanged). Liquidity is adequate, supported by the absence of major short-term maturities in 2025-26 and no major external funding needs for the company’s investments. Overall, Hörmann's available cash sources, in particular cash on the balance sheet of around EUR 90m expected at the end of 2024 and undrawn credit lines of around EUR 37m, cover the group’s cash uses in the next 12-18 months by well over 300%.

The EUR 40.0m syndicated loan and the promissory note loan have a maintenance covenant of an adjusted equity ratio of more than 22%, calculated at the level of the parent company Hörmann Holding GmbH & Co. KG. This covenant is reviewed on a quarterly basis. At the end of 2024, the ratio was 34.5%. In addition, the bond has an incurrence covenant, which is tested if Hörmann initiates a financial transaction such as the payment of a dividend or the raising of further loans and is fulfilled if the leverage ratio is below 2.75x at the respective point in time. In view of the liquidity situation and the earnings forecast, Scope expects compliance with both covenants in 2025-26.

Supplementary rating drivers: credit-neutral (unchanged). The rating does not incorporate any adjustments related to financial policy, peer group considerations, parent support or governance and structure. Hörmann’s capital allocation policy is credit-neutral.

Outlook and rating sensitivities

The Stable Outlook reflects a very solid expected cash position on the balance sheet at year-end 2024 and a solid order situation in Communication and Intralogistics, which Scope expects will more than offset revenue decline in Automotive in 2025. It also reflects Scope’s projection of debt/EBITDA in the range of 1.0x to 1.5x in 2024-26, supported by cash on the balance sheet and the backlog execution in Communication and Intralogistics.

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

1. An improved business risk profile, e.g. through reduced dependency on Funkwerk
    
2. Maintenance of good credit metrics, with debt/EBITDA settling around 1.5x or below on a sustained basis

The downside scenario for the ratings and Outlook is:

1. Debt/EBITDA deteriorating to around 2.5x on a sustained basis (deemed remote), e.g. from lower profitability, the more ambitious use of liquidity for M&A activities or a worsening of Funkwerk’s strong market position

Debt rating

Scope has affirmed the BB rating on senior unsecured debt, in line with the issuer rating. The debt rating is based on an ‘average’ recovery prospect in a simulated default event in 2026. Scope’s recovery analysis incorporates a distressed going-concern enterprise value of around EUR 60m.

Hörmann’s debt instruments total approx. EUR 112m, of which EUR 73m are drawn, comprising in particular a EUR 50m bond, EUR 18m in promissory notes, and a syndicated loan in the amount of EUR 40.0m, of which around EUR 3.0m are utilised. Scope’s recovery analysis also takes aval credit lines into consideration, as Hörmann is a co-obligor or co-borrower for financings of its parent Hörmann Holding GmbH & Co. KG.

All Hörmann’s debt instruments are unsecured and rank pari passu, apart from the EUR 2.5m credit line at Hörmann Klatt Conveyors GmbH, which Scope deems structurally senior.

Environmental, social and governance (ESG) factors

Scope sees no company-specific ESG factors that have a substantial impact on credit risk.

All rating actions and rated entities

Hörmann Industries GmbH

Issuer rating: BB/Stable, affirmation

Senior unsecured debt rating: BB, affirmation

*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, 14 February 2025; European Automotive Suppliers Rating Methodology, 6 February 2024; European Business and Consumer Services Rating Methodology, 15 January 2025), 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: Gennadij Kremer, Director
Person responsible for approval of the Credit Ratings: Sebastian Zank, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 28 March 2023. The Credit Ratings/Outlook were last updated on 28 March 2024.

Potential conflicts
See 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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