We have reaffirmed our SR2 rating for ITM Entreprises (ITME) for its NEU CP program of up to €1,250m. ITME is a subsidiary of Les Mousquetaires SAS (LM, or the group).
Les Mousquetaires is the third-largest food retail group in France. It operates a franchisee business model, with the group in charge of upstream activities (wholesale, purchasing & logistic) while downstream (the running of local stores) is not part of the consolidated scope and is operated by local entrepreneurs, “the associates”. Our rating applies to the upstream operations. The group is ultimately owned by around half of its associates. It has diversified towards Belgium, Poland and Portugal in terms of geography and, in terms of activities, towards do-it-yourself (DIY) and mobility. However, French food retail remains its main activity. The food retail activity focuses on supermarkets, with a significant rural positioning with a physical presence each 17km. The group benefits from good price positioning which is made possible by, among other factors, its vertical diversification in food processing. The group has been strengthening its share of the French food retail market, reaching 15.7% at end-2020 from 14% in early 2017. It gained 0.7% of market share in FY20, actually benefiting from Coronavirus given its better - and more local - positioning vs players with higher reliance on large hypermarkets.
The rating is underpinned by resilient demand, the group’s competitive position with a solid and growing market share, and its good positioning with low dependence on the poorly performing large hypermarkets, which are characterized by significant non-food products. The rating is further strengthened by a lean structure, with associates committed to and rewarded for running well their local businesses, and who are involved in the management of the group. However, we consider that the governance is less transparent than what would be expected for a company of this size.
The group posted a reasonably strong financial performance in 2020, with EBITDA growing by high single-digit rate. Free-cash-flow was negative but that resulted from non-normative working capital effects. The Qivalio’s net adjusted debt-to-EBITDA ratio improved significantly, decreasing to 2.8x from 3.2x. Qivalio’s adjusted net debt is very close to the reported net debt with minor adjustments being made for employee benefits and no adjustment for operating leases, given their minor relevance. For its covenant calculation, the group disclosed a net corporate-debt-to-EBITDA ratio (excluding the property’s net debt and EBITDA) of 0.8x at end-2020 (stable compared with end-2019). In terms of LTV, our total net debt-to-real estate value remained at a broadly similar level, reaching 64% and reflecting broadly unchanged amount of net reported debt (€2.2bn) and portfolio value (€3.4bn). It is worth mentioning that the LTV ratio improved at the property level (based on lower property debt which is somewhat offset at the consolidated level given the higher debt level outside of the property scope). The group’s financial leverage ratio, as calculated by Qivalio, constrain our rating, although this is mitigated by the improvements shown over the recent past. The financial leverage is the result of the significant investments made in real estate, including at the logistical basis. Going forward, ITME is expected to benefit from improving logistical operations, although the impact of this is likely to be offset by potential “price investments” in a period during which consumers could pay even more attention to their budgets. We expect some moderate deleveraging for the coming years, although the intensity of investments made in network development could slightly hamper this trend.
Group indebtedness is concentrated in ITME (50% of the debt), and in the property companies (25% of the debt). ITME is the main holding company, at the statutory level, it has a limited real estate portfolio of €64m but it owns the other group subsidiaries. IEM is the main property company with a €1.5bn real estate portfolio.
The group indebtedness relies on (i) 8 relationship banks (syndicated facilities, amortizing loans, asset-backed facilities/representing c. 40% of the gross debt), (ii) private placements subscribed to by institutions (c. 30%), (iii) NEU CP (c. 15%), along with (iv) associates (c. 15%). The debt with associates includes short-term deposits collected from the associates and their operating companies as well as c. €170m of bonds subscribed to by the associates.
The group’s banking facilities are restricted by covenants, including an LTV ratio capped at 50% (28% at end-2020), a corporate debt-to- corporate EBITDA ratio capped at 2.75x (0.8x at end-2020), and a corporate debt-to-corporate equity ratio of up to 100% (28% at end-2020).
We view the liquidity profile of the group as average. The funding mostly relies on (a) long-term general corporate financing from relationship banks & financial institutions, and (b) short-term financing. The tenure of the long-term financings run between five and ten years, relatively long maturities but still shorter than usual real estate-based financing and so this debt requires recurrent refinancing, which the group has been used to. The short-term financings are mostly composed of the NEU CP program (€511m drawn at end-2020) and short-term debt towards its associates (€455m being short-term deposits at end-2020). The group has improved its liquidity by raising various RCFs facilities for a total amount of €1,050m with roughly 45% maturing in 2023 and 45% maturing in 2024, which mitigate the reliance on short-term financing.
Our Stable outlook reflects our expectation that credit metrics will be maintained at a broadly similar level over the next 12 months.
An upgrade in our rating to SR1 could be triggered if the company deleverages significantly. We see such a scenario as feasible in the event of significant real estate asset disposals.
A downgrade to SR3 could be triggered by a deterioration in credit metrics entailing a negative credit outlook along with a deterioration in the liquidity profile.
Initiation report: No
Last rating action: Initiation at SR2 on 03 July 2020
Rating nature: Solicited short-term public rating
With rated entity or related third party participation: Yes (the rating was published after having been reviewed by the issuer).
With access to internal document: Yes
With access to management: Yes
Name of the rating committee chair: Thomas Dilasser, Senior Credit Analyst.
Material sources used to support the rating decision:
- Financial statements 2020, 2019, 2018, 2017, 2016, 2015
- Discussions with management and management presentation
Limitation of the Rating action:
Qivalio believes the quality and quantity of information available on the rated entity is sufficient to provide a rating.
Qivalio has no obligation to audit or verify the accuracy of data provided.
Principal methodology used in this research and the meaning of each rating category is available at:
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