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Rating action

Scope Ratings GmbH (Scope) has today affirmed the B+ issuer rating of Hungarian discretionary consumer goods company Naturtex Gyapjú- és Tollfeldolgozó Kft. (Naturtex) and revised the Outlook to Stable from Negative. Scope has also affirmed the B+ senior unsecured debt rating of Naturtex.

The Outlook change to Stable from Negative follows the increased demand for Naturtex’s products in 2024 which has led to the recovery of the issuer’s revenue and Scope-adjusted EBITDA margin* to well above the historical average of 12%. After the unfavourable market conditions in 2023 and the outstanding performance in 2024, Naturtex’s debt/EBITDA is estimated to improve to 3.5-4.0x over the next two years. This is supported firstly by the decrease in the company’s debt as Naturtex’s subsidiary, NTT Manufacturing Kft., fulfilled its contractual obligations in 2023, allowing Naturtex to stop providing it with the HUF 1.6bn guarantee from 2024 onwards, and secondly by Scope’s expectation that profitability will normalise at around 12% going forward.

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). Naturtex’s business risk profile is hampered by its weak market share and diversification, despite the company’s strong domestic presence in Hungary and widespread geographic sales. It remains a small market player in Europe (revenue of EUR 28m in 2024) and exposed to a single product category. Naturtex’s brand strength is characterised by its domestically well-known brand with good quality products, although a large proportion of sales are white label products.

The company’s moderate profitability with medium volatility remains the main supportive factor of Naturtex’s business risk profile. In 2024, EBITDA margin increased significantly to 15.6% from 8.7% in 2023 due to the drop in raw material prices and production optimisation. Profitability is forecasted to return to the historical average of around 12% as raw material prices are expected to normalise.

Financial risk profile: BB- (revised from B+). Demand for Naturtex’s products in 2024 was driven by the reopening of the Chinese market and a significant increase in orders from fashion and hospitality customers, leading to revenue growth of 50%. The company sees further upside in all segments, which are expected to drive its moderate growth rate after 2025. One-off drop in revenue is expected in 2025 as part of the orders expected for 2025 were already serviced in 2024Q4 leading to the year’s high revenue growth and causing large working capital swings.

The improvement in the revenue and EBITDA margin and the fulfilment of NTT Manufacturing's contractual obligations (resulting in the cancellation of Naturtex's HUF 1.6bn guarantee to its subsidiary), which reduced the issuer's debt, had a positive impact on the issuer's credit metrics. The company’s exceptional performance in 2024 improved credit metrics significantly compared to 2023 as exemplified by debt/EBITDA decreasing to 2.7x from well-above 6.0x.

In September 2025, the first tranche (HUF 700m) of the bond amortisation is due, which Naturtex plans to refinance through its committed open credit line of EUR 2.2m which can be utilised freely. As the company’s debt is expected to remain relatively stable and EBITDA margin is expected to return to its historical average in 2025, debt/EBITDA will likely settle between 3.5-4.0x and funds from operation/debt will likely return to between 20-25%. The cash flow cover (free operating cash flow/debt) continues to be volatile due to the working capital swings, forecasted to oscillate around 1% after 2025.

Naturtex’s interest coverage remains the main supporting factor of its financial risk profile. It is forecasted to be above 8x in the next two years supported by favourable, fixed interest rates for the majority of the company’s debt portfolio.

Liquidity: adequate (unchanged). Naturtex’s liquidity profile is solid as signalled by projected liquidity ratios of consistently above 110% until 2027 (including the first year of the HUF 700m bond amortisation scheduled for September 2025). While internal and external liquidity ratios drop below 100% in 2027, when the company has to cover the balloon repayment of HUF 2.1bn of its outstanding bond, Scope believes that such payments will be covered by the refinancing of the bond. The company’s solid relationships with banks and access to longer-term committed credit lines mitigate liquidity risks.

Scope highlights that Naturtex’s senior unsecured 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 2.8bn) if the debt rating of the bond stays below B+ for more than two years (grace period) or drops below B- (accelerated repayment within 15 business days). Such a development could adversely affect the group’s liquidity profile. The rating headroom to entering the grace period is zero notches. Given the limited rating headroom, the company must at least maintain its current credit profile to avoid triggering the rating-related covenant.

Supplementary rating drivers: credit-neutral. The rating has no adjustments related to financial policy, peer group considerations, parent support, or governance and structure.

Outlook and rating sensitivities

The Stable Outlook reflects Scope’s view that Naturtex’s financial risk profile will remain moderate as exemplified by its leverage (Debt/EBITDA) remaining below 4x while the company maintains a moderate profitability of around 12% EBITDA margin. Furthermore, the Outlook assumes that the balloon repayment for the company’s bond in September 2027 will be addressed proactively, e.g. through the drawdown of credit lines or new bank loans.

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

1.    Significant improvement in Naturtex’s business risk profile factors (market share, diversification)
    
2. Credit metrics developing in line with expectations (debt/EBITDA below 4x on a sustained basis)

Rating upside is deemed remote due to the company’s limited outreach and its general vulnerability to non-controllable external shocks.

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

1. Debt/EBITDA increasing to above 5x on a sustained basis
    
2. Refinancing of the bond not addressed proactively

Debt rating

In September 2020, Naturtex issued a HUF 2.8bn senior unsecured bond (ISIN: HU0000359922) through the Hungarian Central Bank’s Bond Funding for Growth Scheme. The bond proceeds were used for refinancing financial debt and working capital financing. The bond has a tenor of 7 years and a fixed coupon of 3%. Bond repayment is in two tranches: the first in 2025 with 25% of the face and a 75% balloon payment at maturity in 2027. In addition to the rating deterioration covenants, the bond covenants include non-payment, insolvency proceedings, cross-default, pari passu, negative pledge, change of control and dividend payment restrictions.

Scope has affirmed the senior unsecured debt rating at B+, at the same level as the issuer rating. The recovery analysis is based on a hypothetical default scenario at year-end 2026. Scope has used the liquidation scenario in the analysis due to the asset-rich nature of the company. The recovery is ‘average’ for senior unsecured debt holders in this scenario.

Environmental, social and governance (ESG) factors

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

All rating actions and rated entities

Naturtex Kft.

Issuer rating: B+/Stable, Outlook change

Senior unsecured debt rating: B+, 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, the Rated Entities' Related Third Parties 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: Vivianne Anna Kápolnai, Senior Analyst
Person responsible for approval of the Credit Ratings: Sebastian Zank, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 26 May 2020. The Credit Ratings/Outlook were last updated on 24 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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