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Rating action

Scope Ratings GmbH (Scope) has assigned a first-time issuer rating of B+/Stable to Germany’s automotive supplier Grammer AG.

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- (initial). Grammer’s business risks are largely mitigated by its: i) good position in commercial vehicles; ii) global presence in all major automotive markets; and iii) good profitability in the commercial vehicles sector and good overall profitability in the APAC region. However, business risks are amplified by: i) the cyclicality of global automotive markets; ii) Grammer’s relatively small size, as measured by EBITDA of EUR 70-140m; iii) relatively modest overall profitability; iv) a very modest position in the dominant automotive sector; and v) moderate product diversification, in particular very low exposure to the aftermarket business.

In Scope's view, Grammer's moderate overall market positioning is constrained by the fact that the majority of its revenue is generated in highly competitive automotive product areas, such as consoles and headrests. In particular, profitability in the EMEA and Americas regions indicates low bargaining power. Grammer’s good position in the more consolidated commercial vehicles sector, particularly in the markets for driver’s seats for off-road vehicles and trucks, supports its overall market position.

Scope assesses Grammer's diversification as moderate. Diversification is held back by a relatively concentrated customer base, as the top three customers account for around 40% of revenue; and a relatively concentrated product portfolio, with seats for commercial vehicles accounting for about 35% of total revenue, followed by consoles and armrests (roughly 30%), and headrests (roughly 25%) for car manufacturers. Scope has a negative view of the low aftermarket exposure, which generally provides a more stable and higher-margin revenue stream. Grammer's global presence in all major automotive markets supports overall diversification.

Scope considers relatively modest operating profitability to be the weakest factor within Grammer's business risk profile. The EBITDA margin, around 5% in the past five years, fell to 3.8% in 2024 from 5.1% in 2023. Scope attributes low profitability to the generally low margins in the dominant automotive business and the cost pressure that auto OEMs typically pass on to their suppliers. In addition, profitability is impacted by structural issues in the automotive business in the Americas, which has had a negative EBIT margin since 2020. To improve profitability, Grammer has implemented several restructuring programmes since 2021. The most recent programme, “Top 10 Measures”, implemented at the end of 2023, focuses on improving profitability in EMEA by reducing costs in addition to the turnaround in the Americas. Of particular note in the Americas is the sale of the loss-making TMD Group in September 2024. In EMEA, Grammer sees cost-saving potential in central departments and HQ through the transfer of administrative functions from Germany to its lower cost service center in Serbia. Scope also expects profitability after 2024 to be supported by significantly reduced restructuring costs. This development can already be seen in Q1 2025, with the reported EBIT margin up to 4.0% from 2.2% in Q1 2024, driven by the improvement in EMEA (up to 4.6% from 2.3% in Q1 2024). Overall, the rating agency expects a higher EBITDA margin of around 7.0% in 2025-26.

At around EUR 74m, EBITDA in 2024 was significantly below EUR 117m in 2023 (around EUR 130m excluding the TMD Group). This was caused by lower revenue (down 15% YoY to EUR 1.9bn, down 6.5% like-for-like) and lower profitability. Grammer's revenue is dependent on car and commercial vehicle production, as it does not have a material aftermarket business. Due to the subdued commercial vehicle market anticipated in 2025, Scope has factored in revenue of around EUR 1.88bn (down 2% YoY), which is roughly in line with Grammer’s capital market guidance provided in March 2025. For 2026, the rating agency has factored in revenue of about EUR 2.09bn (up 11% YoY) based on an assumed recovery, particularly in the commercial vehicle business. Scope anticipates that EBITDA will increase to around EUR 130m in 2025 and EUR 150m in 2026 in view of its revenue forecast and improved profitability expectations.

Financial risk profile: B (initial). Grammer’s weaker financial risk profile reflects a combination of weak leverage, moderate-to-good debt protection, and very weak cash flow coverage due to sustained negative free operating cash flow (FOCF). Debt cluster risk in 2027 is also a constraint.

In 2024, Grammer successfully reorganised its entire financing structure with the help of its shareholder, Ningbo Jifeng Auto Parts Co. (NBJF), which provided new hybrid and shareholder loans, and also guaranteed bank loans from Chinese banks. Unlike the available hybrid loans, which received a 50% equity credit, Scope has not provided an equity credit for the shareholder loans due to their contractual structure, particularly the fixed maturities. Based on its adjustments, Scope calculates net debt of EUR 644m at YE 2024, representing a substantial increase from EUR 546m at YE 2023 and a preliminary peak. The YoY increase mainly reflects the negative FOCF in 2024 and loans Grammer provided to its parent company, NBJF as part of the refinancing transaction in 2024. Leverage, as measured by the net debt/EBITDA ratio, has been rather volatile over the last five years, reflecting the cyclical nature of Grammer's business as well as structural issues in the Americas. In 2024, lower EBITDA combined with higher net debt increased the ratio to 8.7x from 4.7x in 2023. For the forecast period, Scope expects the projected increase in EBITDA to outweigh the expected rise in net debt. The rating agency therefore projects net debt/EBITDA improving from the 2024 level to around 5.5x in 2025 and 5.0x in 2026.

Since 2021, debt protection, as measured by EBITDA interest cover, has deteriorated, reaching a low of 2.2x in 2024. This is due to higher interest costs resulting from rising benchmark rates, as well as lower overall profitability. Scope expects interest costs post debt refinancing to settle at around EUR 35m per year in 2025-26. Thanks to the higher projected EBITDA, the rating agency foresees improved interest cover to a moderate-to-good level of around 3.5x in 2025 and 4.0x in 2026.

FOCF has been negative since 2019, making cash flow coverage Grammer's weakest credit metric. This is due to structural issues in the automotive business in the Americas, coupled with restructuring costs and mounting interest payments. While Scope anticipates an improvement from 2024's level, driven by the expected increase in EBITDA, the agency expects FOCF to remain negative at around EUR -25m in 2025 and EUR -40m in 2026. Consequently, cash flow coverage will remain very weak.

Liquidity: adequate (initial). Scope considers Grammer's liquidity profile as adequate. The successful debt reorganisation in 2024 has led to insignificant maturities in 2025-26, which available cash sources cover by over 100%. That said, the maturities of the new financing structure are highly concentrated in 2027 (when total debt of EUR 560m matures), representing a cluster risk in that year. Scope expects Grammer to address this cluster risk over next twelve months at the latest.

The syndicated credit line with the Chinese banks, the syndicated credit line with the German banks, and some other bank loans are subject to covenants relating to gross margin ratio, leverage and gearing. All three covenants have been fulfilled at the end of Q1 2025, with an ample margin. Scope expects Grammer to comply with its covenants in 2025 to 2027 based on the rating agency’s projections, particularly its forecast of higher EBITDA. That said, since the leverage covenant will be adjusted in line with the contractual terms, Scope expects the headroom to the covenant to decrease in the coming quarters, thereby reducing leeway for any operational disappointments.

Supplementary rating drivers: credit-neutral (initial). The rating does not incorporate any adjustments related to financial policy, peer group considerations, parent support or governance and structure.

In recent years, NBJF, Grammer's main shareholder, which holds around 86% of the company's shares, has provided substantial financial support to Grammer. Scope assesses the strategic importance of Grammer to its parent as significant. However, the rating agency has not provided an uplift for parent support to Grammer’s standalone credit assessment as: i) there is no name equality and it is Scope’s understanding that the debt guarantees provided by the parent are temporary; and ii) Scope considers NBJF's capacity to support Grammer during any period of financial stress to be low. This is because Grammer is by far NBJF's most important asset, and financial stress at Grammer would also have a severe impact on NBJF.

Outlook and rating sensitivities

The Stable Outlook reflects the recent refinancing measures, which ensure that there are no major maturities in 2025-26, and the restructuring measures from 2024, which, in combination with the lower restructuring costs, should improve Grammer's profitability in 2025. It also reflects Scope’s expectation that, supported by the improved profitability, debt/EBITDA will improve to around 5.0x in 2026. Furthermore, this reflects Scope's expectation that Grammer will present a refinancing solution for the large loans maturing in 2027 by June 2026 at the latest.

The upside scenarios for the rating and Outlook are (individually):

1. Debt/EBITDA improving to around 4.0x on a sustained basis
    
2. Return to positive FOCF
    
3. EBITDA margin sustained at around 8%

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

1. Deteriorating liquidity caused by delays in the refinancing process for debt maturities due in 2027
    
2. Debt/EBITDA significantly above 5.0x on a sustained basis

Environmental, social and governance (ESG) factors

The key industry-wide ESG factors are energy and resource efficiency (e.g. water, raw materials and energy) and the reduction of emissions. Automotive customers award contracts based on criteria such as compliance with environmental standards and the existence of climate protection measures as part of a company-wide climate strategy. Scope assesses these factors as credit neutral for Grammer.

Scope considers key person risk to be limited given the organisational structure of the company. The Grammer Group is managed by three members of the Executive Board. Since 2020, responsibility for the operating business has been decentralised to the three main regions EMEA (Europe, Middle East and Africa), the Americas (North, South and Central America) and APAC (Asia-Pacific). Due to the significantly increased financial commitment of Grammer’s parent NBJF in the context of the completed refinancing in 2024, Scope expects NBJF to gain more influence through new appointments to the Supervisory Board.

All rating actions and rated entities

Grammer AG

Issuer rating: B+/Stable, new

*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 this Credit Rating and/or Outlook, (General Corporate Rating Methodology, 14 February 2025; Automotive Suppliers Rating Methodology, 2 April 2025), 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 Rating if the Credit Rating was 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 Rating: 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 Rating 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 Rating and/or Outlook and the principal grounds on which the Credit Rating and/or Outlook are based. Following that review, the Credit Rating and/or Outlook were not amended before being issued.

Regulatory disclosures
The Credit Rating and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Rating and/or Outlook are UK-endorsed.
Lead analyst: Gennadij Kremer, Director
Person responsible for approval of the Credit Rating: Sebastian Zank, Managing Director
The Credit Rating/Outlook were first released by Scope Ratings on 26 June 2025.

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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