The latest information on the rating, including rating reports and related methodologies, is available on this LINK.

Rating action

Scope Ratings GmbH (Scope) has affirmed the BBB-/Stable issuer rating on Ceconomy AG. Scope has also affirmed the BBB- senior unsecured debt rating and S-2 short-term debt rating.

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- (revised from BB+). Ceconomy's cost optimization strategy reduced the perceived downside volatility of its Scope-adjusted EBITDA margin* which remained consistently above 4% and is expected to remain so, while EBITDA return on assets improved. Stronger profitability led to a reassessment of the issuer’s business risk profile. The issuer's leading European market position and geographic diversification also continue to support its business risk profile.

Ceconomy is the largest electronic retailer in Europe, with around EUR 22bn of revenue in FY 2023/24 (up 0.5% YoY, up 5.3% after foreign exchange and portfolio adjustments). Its large operational scale developed omnichannel capability and strong customer focus continue to protect its market share (among the top 2 retailers in 9 of the 11 countries covered). The issuer recently shifted to a retail service platform from a pure retailer to expand its service range. This shift in strategy allowed it to withstand weak consumer demand in FY 2023/24 and is expected to protect its market share going forward.

The product offer is also well diversified. Beside electronic and household products, the recent focus on complementary services such as ‘Services and Solutions’, ‘Marketplace’ and ‘Retail Media’ underlines Ceconomy’s proactive approach of adapting to market dynamics. Scope believes these new services will foster the issuer’s market position and further diversify cash flow.

The main negative driver of the business risk profile is that profitability, as measured by EBITDA margin, is below that of its peers. Even so, the ratio has stayed above 4% since FY 2022/23 thanks to cost optimisation offsetting weak consumer demand. EBITDA margin returned to 4.4% in FY 2023/24 (down 0.3pp YoY), under pressure from competitive pricing, particularly in Eastern Europe. This pressure is expected to continue into FY 2024/25, though mitigated by the strong performance of higher-margin services and household products and by lower leasing, energy and administrative costs through a reduced average sqm per store (shifting to smaller formats). The initiation of centralized cost programs in technology, logistics and supply chain is also expected to deliver cost benefits in FY 2024/25. For the forecast period, Scope expects EBITDA margin to remain between 4.0% and 4.5%.

Financial risk profile: BBB- (unchanged). The financial risk profile benefits from an effective deleverage strategy, keeping debt/EBITDA at around 2x, as well as positive free operating cash flows and strong liquidity. The 2024 bond refinancing and the continued increase in lease interest have put pressure on interest cover.

Debt/EBITDA was relatively stable between FY 2023/24 and the previous fiscal year, remaining at 2.0x. Gross debt consists primarily of lease obligations (65% in FY 2023/24), which the group is systematically, but slowly, reducing to improve cash flow and profits. Already, the balance has reduced to EUR 1,725m in FY 2023/24 from EUR 1,961m in FY 2021/22. Moderate, consistent EBITDA growth, coupled with a relatively stable and well-managed debt profile, supports the expectation of leverage staying at or below 2x over the forecast horizon.

EBITDA interest cover, while historically high, has been under pressure in recent years. The figure dropped to 5.8x in FY 2023/24 from 13.1x in FY 2022/23, due to the variable interest rate on leasing obligations and the partial refinancing of the EUR 500m bond maturing in FY 2025/26 at 6.25% (against 1.75% on the refinanced bond, with still EUR 144m outstanding). Looking ahead, Scope anticipates the interest cover to stabilise above 5x, based on the projection of no major debt issuances and a slower increase in interest expense through the reduction of lease obligations.

Free operating cash flow is expected to remain positive, driven by improved working capital management, moderate capex, and lower lease payments from the reduced lease obligations.

Liquidity: adequate (unchanged). Liquidity remains adequate. Unrestricted cash at year-end 2024 (EUR 910m) and projected free operating cash flow (EUR 245m) fully cover the short-term debt obligations (EUR 68m) in FY 2024/25. There is no significant debt maturity over the forecast period.

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

Outlook and rating sensitivities

The Stable Outlook reflects the expectation of moderate EBITDA growth, supported by resilient sales and a conservative cost strategy, and allows for debt/EBITDA of around 2x, positive operating free operating cash flow and EBITDA interest coverage of above 5x.

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

1. Debt/EBITDA sustained below 1.5x and free operating cash flow/debt above 5%
    
2. Remote: further improvement of the business risk profile, through for example better profitability while keeping credit metrics at current level

The downside scenario for the ratings and Outlook is:

1. Debt/EBITDA well above 2.5x on a sustained basis

Debt ratings

Scope has affirmed the senior unsecured debt rating at BBB-, at the same level as the issuer rating. The short-term debt rating has been also affirmed at S-2, supported by the underlying BBB-/Stable issuer rating and the adequate liquidity, with short-term debt fully covered by cash sources and the EUR 900m credit line (with track record of annual renewal).

Environmental, social and governance (ESG) factors

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

All rating actions and rated entities

Ceconomy AG

Issuer rating: BBB-/Stable, affirmation

Short-term debt rating: S-2, affirmation

Senior unsecured debt rating: BBB-, 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; 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.
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 Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlooks are UK-endorsed.
Lead analyst: Claudia Aquino, Associate Director
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The issuer Credit Rating/Outlook was first released by Scope Ratings on 27 June 2017. The Credit Rating/Outlook was last updated on 4 April 2024.
The short-term Credit Rating was first released by Scope Ratings on 27 June 2017. The Credit Rating was last updated on 4 April 2024.
The senior unsecured debt Credit Rating was first released by Scope Ratings on 24 June 2021. The Credit Rating was last updated on 4 April 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
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