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Rating action

Scope Ratings GmbH (Scope) has affirmed the B issuer rating on Hungarian limestone producer Reneszánsz Kőfaragó Zrt and revised the Outlook to Negative from Stable. Scope has also affirmed the B+ senior unsecured debt rating.

The full list of rating actions and rated entities is at the end of this rating action release.

The Outlook revision to Negative from Stable reflects the sustained negative free operating cash flow generation in 2024, mainly caused by increasing cash absorption from working capital. Scope highlights that any deterioration of the EBITDA generation (either caused by weaker demand or increase in input prices) might result in the issuers inability to finance the elevated levels of inventory and recievables, which might result in rapid deterioration of the liquidty profile. Moreover, the rating action reflects the limited visibility on the medium term order intake of Reneszánsz. The currently ongoing phase of the issuers two major projects (renovation of Buda Castle and Kossuth Square in Budapest) are expected to be finished in 2026, which signifciantly limits the issuer's top-line visibility.

Key rating drivers

Business risk profile: B+ (unchanged). The business risk profile is supported by the improving operating profitability and moderate cost and reserve position. The small absolute size of the company and its weak diversification in terms of products, customers and geographies remain credit constraints.

Operating profitability remains a supporting element of the business risk profile. The reported EBITDA margin of Reneszánsz has shown relatively low volatility historically, staying in the range of 14%-18% in the past three years. This changed in 2024, when the reported EBITDA margin jumped to around 34% (2023: 15%). The improvement in operating profitability can be linked to the different margins that can be achieved in different parts of the project life cycle. As the current phase of both major projects) are closer to completion, they reach the higher value-added phase. This is reflected in the H1 2025 interim accounts, where a reported EBITDA margin of 37% can be observed, which is a further improvement even to the elevated levels in 2024. Beyond 2025 Scope expects a normalisation of the Scope-adjusted EBITDA* margin, to stabilise to around 35% in the medium term.

The business risk profile is also driven by Reneszánsz’s strong market position as the largest limestone dimension stone producer in Hungary. Revenues grew by 39% in 2024, reaching HUF 4.7bn, marking a significant increase driven by robust growth in the niche market of national heritage site renovations (Buda). Reneszánsz’s capacities are fully utilised by the end of 2026 by said projects. Scope flags, however, the limited visibility on the medium-term development of demand conditions in this segment, with changing government policies potentially having an adverse effect on the market.

Reneszánsz’s business risk profile is constrained by its small absolute size in both a European and global context as well as its high concentration in terms of activities, products, order book and geographies.

Financial risk profile: B (unchanged). The financial risk profile is supported by the moderate interest cover but remains constrained by high leverage and negative free operating cash flow (FOCF) generation.

EBITDA interest cover is expected to remain comfortably above 4.0x until 2026, benefiting from the improved EBITDA generation and the fixed coupon rate of the bond. The bond issuance in April 2021 secured funding and locked in the borrowing cost for Reneszánsz until 2031, with amortisation started in 2024 and the coupon rate fixed at 3.2%. The interest component of the operating lease payment significantly affects the interest cover metrics (2024: HUF 279m, out of HUF 368m in total interest payments).

Due to the significant improvement of EBITDA generation in 2024, leverage measured by debt/EBITDA also showed a sizeable improvement, reaching 3.6x (2023: 7.7x). Debt increased by 21% to HUF 7.8bn due to: i) an increase in the operating lease obligation adjustment caused by the indexation of the yearly mine lease payment; and ii) the elimination of cash netting from 2024. Scope expects leverage to remain at around 4.0x in 2025 but move towards 5.0x in the medium term due to lower EBITDA generation (more conservative medium-term forecast due to cyclicality of business) in the coming 2-3 years.

Cash flow cover measured by free operating cash flow (FOCF)/debt has been deeply negative in the previous years, mainly because of the significant capex undertaken. In 2024 FOCF generation was closer to break-even (negative HUF 305m), stimulated by higher EBITDA generation and lower capex, but negatively affected by changes in working capital and lease amortisation. Scope expects FOCF generation to be close to break-even going forward despite the lower capex, mainly due to cash outflow related to changes in working capital.

Liquidity: Adequate (unchanged). Liquidity is adequate, as sources (HUF 388m of cash available as of YE 2024 and HUF 411m of FOCF forecasted for 2025) fully cover the HUF 240m of maturing short-term debt in 2025. Scope notes, however, the limited liquidity buffer Reneszánsz has. Increasing cash absorption from working capital, or weaker-than forecasted EBITDA generation might result in inadequate liquidity.

Scope notes that Reneszánsz’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 2.2bn) 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 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 (unchanged). Supplementary rating drivers are deemed credit-neutral.

Outlook and rating sensitivities

The Negative Outlook reflects the ongoing negative FOCF and the risk that this will continue beyond 2024. This is due to volatile shifts in working capital levels and indexed operating lease payments, which are independent of topline development. Consequently, this could result in a deterioration of Reneszánsz's liquidity profile in the medium term. Additionally, the Negative Outlook signals the limited visibility on revenue generation beyond 2026, with the projects within the issuers current order book concluding in 2026.

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

1. Sustained positive FOCF
    
2. Material improvement of visibility on revenue development by March 2026

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

1. No positive FOCF generation in 2025 and beyond
    
2. No material improvement of visibility on revenue development by March 2026

Debt rating

Scope has rated the senior unsecured debt issued by Reneszánsz at B+, one notch above the issuer rating. The recovery is ‘excellent‘ for senior unsecured debt holders in a liquidation scenario. 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 debt.

In April 2021, Reneszánsz issued a HUF 2.4bn senior unsecured bond (ISIN: HU0000360375) through the Hungarian Central Bank’s Bond Funding for Growth Scheme. The bond proceeds have been used for refinancing and capital investment, i.e. to procure new mining and stoneworking equipment and to refurbish existing equipment. The bond’s tenor is 10 years, with a fixed coupon of 3.2% and repayment in eight tranches: 5% of the face value in 2024 and 2025; 10% yearly between 2026 and 2030; and 40% at maturity in 2031.

Environmental, social and governance (ESG) factors

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

All rating actions and rated entities

Reneszánsz Köfaragó Zrt.

Issuer rating: B/Negative, 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; Metals and Mining Rating Methodology, 21 October 2024), are 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 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 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: Philipp Wass, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 29 January 2021. The Credit Ratings/Outlook were last updated on 30 September 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
© 2025 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Innovation Lab GmbH and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5, D-10785 Berlin. Public Ratings are generally accessible to the public. Subscription Ratings and Private Ratings are confidential and may not be shared with any unauthorised third party.