Scope Ratings (Scope) today assigns a BBB- issuer rating and an S-2 short-term rating to Metro AG, which will later be renamed CECONOMY AG (CECONOMY). The Outlook is Stable. These reflect Scope’s view of i) the group’s credit-supportive industry risk, supported by the retail markets underlying its stability, ii) CECONOMY’s position as the clear European market leader in consumer electronics retail segment, and iii) Scope’s view of the group’s very strong balance sheet after the demerger, having resulted in a rating-supportive financial risk profile.

The ratings reflect Scope’s view of CECONOMY’s underlying market of consumer electronics retail, which is inherently more stable than macroeconomic trends; position as Europe’s clear market leader; and diversified product range, which comprises ‘white’ and ‘brown’ goods and telecommunications and entertainment equipment. However, comparatively low operating margins constrain the ratings. The assessment also reflects Scope’s view of management’s conservative financial policy, the strong balance sheet after the demerger of Metro Group, organic growth focus, and future operating-margin enhancement as a stand-alone company. CECONOMY’s ownership structure is credit-neutral, despite the voting representation (21.6%) of Convergenta, the minority owner of MediaMarkt Saturn Holding.

Scope’s financial risk assessment reflects the expectation that CECONOMY will maintain the strong balance sheet that followed the demerger. This has resulted in an almost financial-debt-free balance sheet; the only sizeable element of Scope-adjusted debt (SaD) comprises leasing-debt equivalents of about EUR 2.4bn. Scope believes management’s financial policy, including a strong commitment to achieve and maintain an investment grade level, provides sound protection for the ratings.

Key rating drivers

Positive

• Credit-supportive underlying retail industry
• European market leader in consumer electronics retailing
• Strong balance sheet
• Strong liquidity position

Negative

• Low operating margins
• Some countries still loss-making 

Outlook

The Stable Outlook reflects Scope’s expectation that CECONOMY’s financial risk profile will not significantly deteriorate in the coming years. Specifically, present ratings are commensurate with credit metrics reflective of a BBB category, as indicated by Scope-adjusted funds from operations/net debt of 35-40% and a SaD/EBITDA ratio of below 2.5x.

A higher rating could be triggered by an improved business risk assessment, for example, through better operating margins and free cash flow, or financial metrics sustainably exceeding aforementioned levels. A negative rating action could result from a more aggressive financial policy or a sustained, negative deviation from ratios commensurate with the present ratings.

The full rating report, which includes the rating rationale and analytical details, is available HERE.

Legal and regulatory disclosures

Important information
Information pursuant to Regulation (EC) No 1060/2009 on credit rating agencies, as amended by Regulations (EU) No. 513/2011 and (EU) No. 462/2013

Responsibility
The party responsible for the dissemination of the financial analysis is Scope Ratings AG, Berlin, District Court for Berlin (Charlottenburg) HRB 161306 B, Executive Board: Torsten Hinrichs, Dr Stefan Bund
Rating prepared by: Olaf Tölke, Lead Analyst
Rating committee responsible for approval of the rating: Werner Stäblein, Committee Chair
The rating concerns an entity, which was evaluated for the first time by Scope Ratings AG.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months. A rating change is, however, not automatically ensured.

Information on interests and conflicts of interest
The rating was prepared independently by Scope Ratings but for a fee based on a mandate of the rated entity. The issuer participated in the rating process.
As at the time of the analysis, neither Scope Ratings AG nor companies affiliated with it hold any interests in the rated entity or in companies directly or indirectly affiliated to it. Likewise, neither the rated entity nor companies directly or indirectly affiliated with it hold any interests in Scope Ratings AG or any companies affiliated to it. Neither the rating agency, the rating analysts who participated in this rating, nor any other persons who participated in the provision of the rating and/or its approval hold, either directly or indirectly, any shares in the rated entity or in third parties affiliated to it. Notwithstanding this, it is permitted for the above-mentioned persons to hold interests through shares in diversified undertakings for collective investment, including managed funds such as pension funds or life insurance companies, pursuant to EU Rating Regulation (EC) No 1060/2009. Neither Scope Ratings nor companies affiliated with it are involved in the brokering or distribution of capital investment products. In principle, there is a possibility that family relationships may exist between the personnel of Scope Ratings and that of the rated entity. However, no persons for whom a conflict of interests could exist due to family relationships or other close relationships will participate in the preparation or approval of a rating.

Key sources of information for the rating
Website of the rated entity, detailed information provided on request, valuation reports, other opinions, data provided by external data providers, current performance record, external market reports, unaudited annual financial statements, press reports/other public information
Key sources are the issuer, third parties, public domain and Scope internal sources.
Scope Ratings considers the quality of the available information on the evaluated company to be satisfactory. Scope ensured as far as possible that the sources are reliable before drawing upon them, but did not verify each item of information specified in the sources independently.

Methodology
The methodology applicable for this rating (Corporate Rating Methodology) is available on www.scoperatings.com. The historical default rates of Scope Ratings can be viewed on 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’s default rating, definitions of rating notations and further information on the analysis components of a rating can be found in the documents on methodologies on the rating agency’s website.

Examination of the rating by the rated entity prior to publication
Prior to publication, the rated entity was given the opportunity to examine the rating and the rating drivers, including the principal grounds on which the credit rating or rating outlook is based. The rated entity was subsequently provided with at least one full working day, to point out any factual errors, or to appeal the rating decision and deliver additional material information. Following that examination, the rating was not modified.
 
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Rating issued by
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