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Rating Action:

Moody's affirms EVOCA's B2 ratings, outlook changed to stable from negative

18 May 2018

Frankfurt am Main, May 18, 2018 -- Moody's Investors Service ("Moody's") has today affirmed the B2 corporate family rating (CFR) and B2-PD probability of default rating (PDR) of EVOCA S.p.A. (EVOCA), the leading European manufacturer of automatic vending machines for hot and cold drinks and other food and beverage products. Concurrently, Moody's has affirmed the B2 instrument rating assigned to the company's EUR410 million first lien senior secured notes. The outlook on the ratings has been changed to stable from negative.

RATINGS RATIONALE

Evoca's B2 CFR and B2-PD PDR balance the company's strong operating profile evidenced by its very high profitability and its ability to generate good cash flows and improved business profile following the acquisition of Saeco Vending and two smaller activities during 2017 with high, and increased, leverage and still small operations in a fairly mature market.

"Moody's decision to affirm the ratings assigned to EVOCA and to stabilize the outlook reflects the solid performance the company has delivered throughout 2017, in particular an EBITA margin in the mid-teens (15.3% as adjusted by Moody's) and a retained cash flow coverage of 7.1% of net debt", said Oliver Giani, Moody's lead analyst for EVOCA. "Moody's also factored in its expectation that EVOCA will be able to reduce leverage below 6x Debt / EBITDA during 2018 while continuing to deliver a positive free cash flow", he went on to say.

The ratings are primarily constrained by EVOCA's (1) small size despite the acquisitions made in 2017 which increased revenues by approximately €95-100 million to a level above €400 million and limited product diversification; (2) high leverage, with Moody's adjusted debt/ EBITDA of around 6.4x pro forma for full-year effect of the transactions up from estimated 5.9x in 2016, which still positions EVOCA weakly in the B2 rating category but with an expectation of gradual improvements over the next 6-12 months; (3) some concentration risk in terms of geographies, with the majority of revenues being generated in Western Europe; and (4) limited revenue visibility, with a backlog of around one month of sales.

The B2 ratings are supported by the company's (1) clear market leadership in its key European markets; (2) very high profitability, with a Moody's adjusted EBITA margin in a range between 15% to 20% and our expectation that the company will be able keep its profitability at the upper end of that range after the integration of Saeco Vending, enabled by the breadth of the company's product portfolio, constant innovation, profitable accessories and spare parts business, and strong ties to the key customers in the industry; and (3) asset light business model, with fairly low tangible capex requirements and a variable cost structure that helps to maintain stability of margins and to support free cash flow generation.

LIQUIDITY

EVOCA has an adequate liquidity position which is supported by a cash balance of approximately €57 million as of December 2017 and a revolving credit facility (RCF) of €40 million maturing in 2022, completely undrawn as of December 2017. We expect that EVOCA's liquidity sources including cash on balance sheet, the undrawn RCF and decent free cash flow generation are sufficient to cover its liquidity needs over the next 12-18 months. The revolving facility only contains one net leverage covenant that is being tested only when drawings under the RCF increase above 35% of the total commitment. The company does not have any debt maturities until 2023, when the €410 million bond matures.

RATIONALE FOR INSTRUMENT RATING

The €410 million first lien senior secured notes issued by EVOCA are rated B2, in line with the CFR, despite the fact that they rank ahead of €100 million second lien senior secured notes (unrated) that provide a cushion for the secured debt. However, this is not viewed as sufficient to warrant an uplift also considering the still weak positioning of EVOCA at B2. In a default scenario, the super senior revolving facility ranks at the top of the Loss Given Default waterfall, followed by the €410 million first lien senior secured notes and trade payables at second rank ahead of the €100 million second lien senior secured bond. The guarantors for senior secured debt represent at least 80% of group sales, EBITDA and assets.

RATIONALE FOR STABLE OUTLOOK

The stable outlook reflects our expectation that in the next 12 months EVOCA will be able to reduce leverage below 6.0x debt/EBITDA and to achieve a Moody's adjusted EBITA margin in the high teen percentage range, while generating positive free cash flow.

WHAT COULD CHANGE THE RATINGS UP/DOWN

An upgrade would require that EVOCA shows the ability to sustain its strong profitability with Moody's adjusted EBITA margin returning to around 20% and healthy free cash flow generation, while improving Moody's adjusted gross debt/EBITDA sustainably below 5.0x (around 6.4x for 2017, pro-forma assuming full year contribution of the acquisitions made).

EVOCA's ratings could be downgraded, if the company (1) fails to reduce gross debt/EBITDA, as adjusted by Moody's, to below 6.0x by FY2018; (2) EBITA margin, as adjusted by Moody's, deteriorates towards the mid-teens on a sustainable basis; (3) free cash flow, as adjusted by Moody's, deteriorates significantly towards break-even; or (4) liquidity position tightens. In addition, any signs of deteriorating market conditions on a sustained basis could put pressure on the ratings.

The principal methodology used in these ratings was Global Manufacturing Companies published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Bergamo, Italy, EVOCA S.p.A. (EVOCA, formerly known as N&W Global Vending S.p.A.1) is the leading European manufacturer of automatic vending machines for hot and cold drinks and other food and beverage products. It also produces coffee machines designed for use in hotels, restaurants, cafeterias and offices. With a number of acquisitions over the last few years the company increasingly focused on coffee and reflected this in a new corporate branding and a change in segment reporting. As of December 2017 EVOCA operated 8 manufacturing sites and had around 1,800 employees. On a pro-forma basis the company reported revenue of more than €400 million for the year 2017.

EVOCA was acquired by funds controlled by private equity firm Lone Star (unrated) for a total consideration of roughly €670 million in March 2016. In March 2017 EVOCA announced the acquisition of Saeco Vending S.p.A. for an undisclosed purchase price. Saeco Vending, headquartered in Gaggio Montano, Italy, generated approximately €62 million revenues in 2016 and employs approximately 330 employees. In addition, two complementary bolt-on acquisitions, Ducale macchine da caffè S.r.l. and a 67% stake in Cafection, have been done in June 2017.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Oliver Giani
Vice President - Senior Analyst
Corporate Finance Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Matthias Hellstern
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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