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Rating action

Scope Ratings GmbH (Scope) has today affirmed the BB- issuer rating of Hungarian food producer Tranzit-Food Kft. (Tranzit) and revised the Outlook to Negative from Stable. Scope has also affirmed the BB rating of Tranzit’s senior unsecured guaranteed bond (ISIN: HU0000360599).

The change in Outlook is driven by the negative development of profitability with Scope-adjusted EBITDA margin* dropping below 5% in 2024 from 10.2% in 2023. While credit metrics remained moderate, a failure to restore operating profitability to historical averages of around 10% could lead to deterioration of the issuer’s credit profile.

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- (unchanged). Operating profitability has shown increased volatility in recent years. The primary driver is the duck and goose segment (52% of 2024 revenue), whose EBITDA margin has fluctuated between 2% and 21% over the past five years, though this volatility is typical for premium products, which are inherently vulnerable to changes in business and demand conditions and have high substitution risk. On the other hand, cyclicality risk is lower for the chicken segment (48% of 2024 revenue), which generates more stable, albeit lower, EBITDA margin of between 4% and 7% in the past five years. The expected increase in the contribution of the chicken segment to above 50% of revenue in the medium term is anticipated to dampen EBITDA margin volatility.

Tranzit's business risk profile continues to be supported by its market share, strengthened by its leading position in Europe as a goose and duck meat producer. The market share of its chicken segment, while modest, is on track to increase following intensive capital expenditure. The 16% fall in sales revenue in 2024 to HUF 58.8bn was due to lower selling prices and a more adverse market rather than falling market share. Scope anticipates turnover to recover swiftly and reach HUF 80bn by 2026. This will be driven by external and internal factors including: i) the bird flu outbreak in Poland, which accounts for most of Europe's poultry production and is leading to lower supply and higher selling prices; and ii) the completion of Tranzit's investment to double chicken slaughterhouse capacity.

Tranzit’s moderate diversification by product and geography is impaired by the increasing concentration in terms of customers and sales channels. This is shown by the slight increase of the domestic market within total sales, at 60% in 2024 from 52% in 2023.

Financial risk profile: BB+ (unchanged). The financial risk profile remains supported by the good leverage and debt protection but constrained by the volatile cash-flow cover.

Leverage, as measured by debt/EBITDA, increased to 2.3x in 2024 (up 2.1x YoY), although this is seen temporary given the weaker operating profitability. Beyond 2024, Scope expects leverage to return below 1.0x, in line with debt amortisation and the projected gradual recovery in operating profitability. The debt calculation includes a partial netting of cash, applying a 30% haircut to account for seasonal swings in working capital.

Net interest income was again realised during 2024, reaching HUF 277m, due to the high level of cash and favourable deposit rates. Interest expense was HUF 323m (average interest rate of 2.4%, similar to the 2023 level), benefiting from the low coupon of the HUF 9.2bn bond issued under the MNB bond funding for growth programme (2%) and the moderate debt level. For the medium term, Scope forecasts interest expense to decrease gradually in line with the amortisation of financial debt. Interest income is also expected to decrease due to a lower cash level from 2025, yet Scope still expects net interest income until 2026.

Cash-flow cover is expected to remain volatile, swinging between highly positive and deeply negative values. In 2024, the high inventory at year-end resulted in increased cash absorption from working capital and thus resulted in negative free operating cash flow of HUF 7.4bn despite capex (HUF 2.9bn) being lower than in previous years.

Liquidity: adequate (unchanged). Liquidity is assessed as adequate, as sources (HUF 5.8bn of available unrestricted cash as at YE 2024 and free operating cash flow of HUF 1.2bn forecasted for 2025) fully cover uses (scheduled debt amortisation of HUF 2.4bn) in 2025.

Scope highlights that Tranzit’s senior unsecured guaranteed bond 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 9.2bn) if the debt rating of the bonds stays below B+ for more than two years (grace period) or drops below B- (accelerated repayment within 30 days). Such a development could adversely affect the company’s liquidity profile. The rating headroom to entering the grace period is 2 notches. Scope therefore sees no significant risk of the rating-related covenant being triggered.

Supplementary rating drivers: credit-neutral (unchanged). Supplementary rating drivers are credit-neutral. Structural weaknesses in the rated entity’s governance and structure do not lead to a negative rating-adjustment for supplementary rating drivers as these are already reflected in the weighting between the business and financial risk profile. Such weaknesses pertain to the key person risk associated with the rated entity’s CEO, Mr. Ákos Szabó. This is due to material the concentration of decision-making powers with this individual in terms of operational strategy. A materialisation of key person risk could impair the issuer’s operational effectiveness.

Outlook and rating sensitivities

The Negative Outlook reflects the risk that the EBITDA margin will not return to historical averages (around 10%) on a sustainable basis, following the margin deterioration experienced since FY 2023. The Outlook also reflects Scope's view that the more favourable market conditions in Europe in general and specifically related to supply constraints due to the bird flu outbreak in Poland, are only temporary. The financial risk profile is expected to remain moderate, with debt/EBITDA well below 4.0x and net interest income, while operating free cash flow remains exposed to working capital fluctuations.

The upside scenario for the ratings and Outlook is:

1. EBITDA margin sustained at around 10%

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

1. EBITDA margin not sustained at around 10%
    
2. Further downside is possible if debt/EBITDA rises above 4.0x on a sustained basis

Debt rating

In 2021, Tranzit issued a HUF 9.2bn senior unsecured guaranteed bond (ISIN: HU0000360599) through Hungary’s bond scheme. The bond’s tenor is seven years, with a fixed coupon of 2.0% and repayment in four tranches: 10% in 2025, 20% in 2026 and 2027 and a 50% tranche at maturity in 2028. The bond has been issued with a guarantee from the related company Tranzit Ker Zrt.

The recovery analysis indicates a ‘superior’ recovery for the senior unsecured guaranteed bond and for all other senior unsecured debt positions at the level of Tranzit, even after a recovery of all senior secured debt. The recovery assessment benefits from the high level of fixed assets, mainly property, plant and equipment, translating into the rating of the senior unsecured guaranteed bond being one notch above the issuer rating (BB). This recovery rate normally allows for more than one notch of uplift but was limited due to the potential volatility in the capital structure on the path to default combined with the issuer’s ability to raise additional debt ranking above the senior unsecured guaranteed bond.

Environmental, social and governance (ESG) factors

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

All rating actions and rated entities

Tranzit-Food Kft.

Issuer rating: BB-/Negative, Outlook Change

Senior unsecured (guaranteed) debt instrument rating (ISIN: HU0000360599): 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; 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/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: Istvan Braun, Senior Representative
Person responsible for approval of the Credit Ratings: Philipp Wass, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 22 October 2019. The Credit Ratings/Outlook were last updated on 4 June 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
© 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. Public Ratings are generally accessible to the public. Subscription Ratings and Private Ratings are confidential and may not be shared with any unauthorised third party.