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Rating action

Scope Ratings GmbH (Scope) has assigned a first-time issuer rating of B/Stable to Textura Zrt., along with a (P)B+ preliminary rating to the senior unsecured bond guaranteed by the MFB.

Rating rationale

Textura is a well-established workwear fabrics and protective clothing fabrics trading company, especially in Central Eastern Europe (CEE). It achieved total revenues of HUF 5.4bn (up 6.7% YoY) and Scope-adjusted EBITDA of HUF 319.6m in 2020. With the addition of its new plastics business line that produces coffee capsules and swimming pool bodies (production started in September 2021), the company has positive growth prospects of HUF 11.7bn in revenue and HUF 1.8bn in EBITDA until 2023 (our base case).

Textura’s business risk profile is rated B+. The company has good market positioning in Hungary and nearby countries. With its textile business, it is well established in the niche market for workwear and protective clothing. Regarding its plastic business, we are cautious about the company’s expected growth prospects, as it does not yet have the necessary size or pricing power and must compete against large multinational corporates, especially in the coffee capsule segment. Profitability is solid but highly volatile with Scope-adjusted EBITDA margins fluctuating between 5%-8% and Scope-adjusted EBITDA return on assets between 7%-11%. Although we expect margins to increase to up to 15% in our financial base case, we assume profitability will become even more volatile due to the uncertain development of Textura’s coffee capsule and swimming pool business.

Textura’s financial risk profile is rated B. While it has shown volatile EBITDA development in the past, it is planning for steady growth in future. We expect free operating cash flows to become increasingly volatile, driven by high capex in the years to come in order to develop the company’s production site and purchase new machines to make coffee capsules and pool bodies. Leverage has been moderate in the past, but is expected to increase significantly (to around 7x at YE2022) after the planned bond issuance. Textura has no long-term loans and only two short-term credit lines. We see this as a (manageable) risk in the current transformation of the company. Although the company has shown that it can generate sufficient cash, its business is very capital-intensive. With the new plastics business line, this will increase. Given that it has no proven track record in this new area, the company is dependent on banks being convinced of its strategy and continuing to regularly grant or extend short-term credit lines.

Outlook and rating-change drivers

The Stable Outlook reflects our expectation that Textura will be able to successfully place the planned HUF 5.0bn bond while credit metrics will develop at least in line with our financial base case (indicating a SaD/EBITDA in the range of 4x-6x over time) and that the company will not pay any dividends during its expansion phase.

A positive rating action could be warranted: i) if the company’s business risk profile improved significantly after the expansion phase through a good development of the plastics business line in terms of higher market shares, broader geographical diversification and an improved customer and supplier base, including long-term purchasing contracts; or ii) if SaD/EBITDA falls below 4x on a sustained basis.

A negative rating action could occur: i) if credit metrics did not show a lasting improvement from 2023 (post expansion capex), leaving SaD/EBITDA around 6x or higher; or ii) if the company’s liquidity situation tightened. This could be triggered by weaker-than-expected sales growth in the plastics business line and/or delays in the planned ramp-up of production capacity.

Long-term debt ratings

Textura plans to issue a HUF 5.0bn bond guaranteed by the MNB Bond Funding for Growth Scheme with a fixed-rate coupon estimated at 3.9% and a 10-year tenor. Amortization will start after 5 years (in 2027) with an annual repayment of HUF 0.5bn and a remaining 50% bullet repayment in the final year (2032). Concerning the coupon, we were more cautious and assumed a higher value in our financial base case. HUF 3.5bn of the bond proceeds will be used for the development of the plastic business line, in detail HUF 1.35bn for the development of the production site, HUF 1.15bn for the purchase of new capsule manufacturing machines and HUF 1.0bn for the purchase of new pool production machines. HUF 1.0bn will be used for the refinancing of the company’s current investment loan and the remaining HUF 0.5bn for financing the working capital expansion.

The planned HUF 5.0bn senior unsecured bond will be guaranteed 80% by the MFB (rated by Scope at BBB+/Stable), based on which Scope assigns a (P)B+ preliminary rating to the senior unsecured bond guaranteed by the MFB. In this case, Scope expects an ‘above-average’ recovery for this bond in a hypothetical default scenario based on a distressed liquidation value, resulting in one notch uplift above the issuer rating.

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, (Corporate Rating Methodology, 6 July 2021; Rating Methodology: Retail and Wholesale Corporates, 17 March 2021), are available on https://www.scoperatings.com/#!methodology/list.
Scope Ratings GmbH and Scope Ratings UK Limited apply the same methodologies/models and key rating assumptions for their credit rating services, while Scope Hamburg GmbH’s methodologies/models and key rating assumptions are different from those of Scope Ratings GmbH and Scope Ratings UK Limited.
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-scale. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://www.scoperatings.com/#governance-and-policies/regulatory-EU. 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-scale. 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://www.scoperatings.com/#!methodology/list.
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 the 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 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: Nils Weinhold, Senior Analyst
Person responsible for approval of the Credit Ratings: Henrik Blymke, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 3 February 2022.

Potential conflicts
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

Conditions of use/exclusion of liability
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