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Rating action

Scope Ratings GmbH (Scope) has today affirmed Hungary-based CLA Pig Kft’s issuer rating at B+/Stable. The instrument rating of the HUF 3.26bn senior unsecured guaranteed bond (ISIN: HU0000360672) has been affirmed at BB-.

The affirmation is supported by solid operating performance in 2024. CLA Pig’s revenues increased to HUF 8.1bn, representing 24% year-on-year growth. This reflects rising sales volumes as capacity-increasing investments in the Kisbaráti pig farm near completion. The Scope-adjusted EBITDA margin* has grown sizeably (18.8% in 2024 from 13.3%), benefitting from favourable input prices (mainly consistently low animal feed prices), while selling prices for piglets and pork meat remained comparatively high.

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). CLA Pig’s business risk profile is supported by moderate operating profitability. Limited market share and weak diversification are constraints.

Despite a dynamic increase in sales revenue in recent years, CLA Pig remains small in both a Hungarian and European context. With an estimated domestic market share of around 7%, the company is a small player in the Hungarian pork segment. The expansion of the Kisbaráti pig farm, completed in Q4 2024, is expected to grow the issuers capacity up to 280,000 animals (Scope expects complete utilisation of the capacities by the end of 2025). The new investment is expected to double CLA Pig’s market share, placing it amongst the medium-sized pig farms in a heavily fragmented domestic market.

Following weaker operating profitability in 2022 and 2023, EBITDA margin returned close to historical levels in 2024 (around 20%). Scope notes that both previous years can be considered outliers, as the EBITDA margin was negatively affected by one-time, extraordinary effects (force majeure events). In addition to the more supportive market environment, with lower animal feed prices, the EBITDA margin was further enhanced by the positive effects of the large-scale investment project undertaken in previous years. Beyond 2024, Scope forecasts that the EBITDA margin will remain stable in the medium term, benefitting from the improved operating efficiency of the expanded Kisbaráti pig farm. An example here is the utilisation of renewable energy sources, which will reduce exposure to energy price volatility and lower energy consumption (credit-positive ESG factor).

Scope notes that the issuer’s operating profitability remains highly dependent on the European Union’s Common Agricultural Policy subsidies, as recurring subsidies have been a reliable source of income over the past few years. Any changes in the subsidy system could significantly impact CLA Pig’s operating cash flow and profitability (credit-negative ESG factor).

The low degree of diversification, both in terms of geographies and product categories, limits CLA Pig’s ability to mitigate external shocks and weather changes in market conditions.

Financial risk profile: BBB- (revised from BB+). The financial risk profile is supported by good leverage metrics and very strong interest cover. It is constrained by volatile cash flow cover.

The significantly improved EBITDA margin, coupled with a stable debt level, has led to a positive trend in leverage, with debt/EBITDA reaching 2.4x (2023: 4.4x). Medium-term projections indicate a likelihood of leverage staying consistently below 3.0x. This is based on Scope's forecast of EBITDA margins maintaining a range of 19%-20%, with no anticipated increase in financial debt in the coming years.

Interest cover remains the strongest element of CLA Pig’s financial risk profile. This metric benefits from: i) strong EBITDA generation; ii) the favourable, fixed coupon rate of the MNB bond; and iii) the interest income generated from short-term cash deposits. In 2024, EBITDA interest coverage stayed significantly above 10.0x (2024: 43.9x).

In recent years, free operating cash flow (FOCF) generation has been increasingly volatile. The issuer generated negative FOCF in 2023, which is not unusual in the middle of a capex-intensive period. In 2024, FOCF generation turned positive again – marking the end of the Kisbaráti investment, and capex fixed at a lower level. Scope expects FOCF to remain positive going forward, and FOCF/debt is expected to move sustainably above 20% in the medium term.

Liquidity: adequate (unchanged). Liquidity is adequate, as sources fully cover uses in 2025 (short-term debt of HUF 451m as of YE 2024). Sources comprise HUF 2bn in freely available cash and FOCF of HUF 172m. Scope anticipates that liquidity will remain adequate in the medium term, with coverage remaining above 200%, even after the amortisation period for the bond begins.

Scope notes that CLA Pig’s guaranteed senior unsecured bond issued under the Hungarian Central Bank’s bond scheme has an accelerated repayment clause. The clause requires CLA Pig to repay the nominal amount (HUF 3.26bn) if the debt rating of the bond 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 two notches. Scope therefore sees no significant risk of the rating-related covenant being triggered.

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

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating sensitivities

The Stable Outlook reflects the assumption that credit metrics will develop in line with Scope’s rating case forecast and the EBITDA margin stabilising at close to 20% in the medium term. Leverage, measured by debt/EBITDA, is expected to remain below 3.0x in the medium term, while FOCF stays consistently positive, benefitting from lower forecasted capex after the end of the current investment cycle.

The upside scenario for the ratings and Outlook is:

• Significantly improved business risk profile and operational scale (remote)

The downside scenario for the ratings and Outlook is:

• Debt/EBITDA sustained significantly above 4.0x

Debt rating

In August 2021, CLA Pig issued a HUF 3.26bn senior unsecured guaranteed bond (ISIN: HU0000360672) through the Hungarian Central Bank’s Bond Funding for Growth Scheme. The bond’s tenor is 10 years, with a fixed coupon rate of 2.9% and repayment in five tranches of 10% in 2026, 2027, 2028, 2029 and 2030 and a 50% tranche in 2031. The bond has been issued with a guarantee from the related company CLA Service Kft.

Scope’s recovery analysis indicates an ‘excellent’ recovery for the senior unsecured guaranteed bond and for all other senior unsecured debt positions at the level of CLA Pig, even after all senior secured debt is fully recovered. The recovery benefits from a high level of fixed assets (mainly consisting of PPE), translating into a debt instrument rating for the senior unsecured guaranteed bond one notch above the issuer rating (BB-). Although the recovery rate allows for more than one notch of uplift compared to the issuer rating, Scope has limited the uplift to one notch due to potential volatility in the capital structure on the path to default, and the issuer’s ability to raise additional debt ranking above the senior unsecured guaranteed bond. The guarantee of CLA Service Kft. has no significant effect on the expected recovery of the debt instrument.

Environmental, social and governance (ESG) factors

Overall, ESG factors are neutral for the rating. This reflects Scope’s credit-positive assessment of operational efficiency following the investment in renewable energy sources, as well as the credit-neutral assessment of the issuer’s inherent vulnerability to regulatory risk (changes in the EU Common Agricultural Policy directly affect operating profitability) and corporate structure (lack of group-level disclosures and consolidated financial statements).

All rating actions and rated entities

CLA Pig Kft.

Issuer rating: B+/Stable, affirmation

Senior unsecured (guaranteed) debt instrument rating (ISIN: HU0000360672): 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 methodology used for these Credit Ratings and/or Outlook, (General Corporate Rating Methodology, 14 February 2025), is available on 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 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 scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA):registers.esma.europa.eu/cerep-publication/. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at 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 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, 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: Istvan Braun, Senior Representative
Person responsible for approval of the Credit Ratings: Sebastian Zank, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 3 August 2021. The Credit Ratings/Outlook were last updated on 21 August 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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