Frankfurt am Main, March 07, 2017 -- Moody's Investors Service, ("Moody's") has
today affirmed the B2 corporate family rating (CFR) and B2-PD probability
of default rating (PDR) of N&W Global Vending S.p.A
("N&W"), the leading European manufacturer of automatic vending
machines, following the announcement to acquire Saeco Vending S.p.A.
("Saeco Vending") for an undisclosed purchase price financed
through a tap issue of EUR70 million. Concurrently, Moody's
has affirmed the B2 (LGD3) instrument rating first lien senior secured
notes (EUR370 million, out of which EUR70 million proposed tap issuance)
raised by N&W Global Vending S.p.A. The outlook
on the ratings has been changed to negative from stable.
"N&W's B2 CFR balances 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
with high, and increased, leverage and still small operations
in a fairly mature market", says Oliver Giani, the lead analyst
on N&W.
RATINGS RATIONALE
The B2 CFR and B2-PD PDR are primarily constrained by N&W's
(1) small size despite the acquisition of Saeco Vending which materially
increases revenues by approximately EUR62 million to roughly EUR361 million
and limited product diversification; (2) high leverage, with
Moody's-adjusted debt/EBITDA of around 6.5x pro-forma
for the transaction up from estimated 6.1x in 2016, which
positions N&W weakly in the B2 rating category and includes the expectation
of gradual improvements in the next 12-18 months; (3) some
concentration risk in terms of geographies, with the majority of
revenues being generated in Western Europe, and customers,
with the top three customers representing almost one third of revenues;
and (4) limited revenue visibility, with a backlog of around one
month of sales.
The vending machines market is largely mature with limited growth potential,
but following a period of operators' underinvestment, the park's
average age is reaching the end of its useful life as per the company's
expectation. This development could boost investments into the
park and, with its strong and comprehensive offering, N&W
would benefit from it. However, the timing of that development
is uncertain as the increase in sales to small-to-medium
sized customers realized in 2016 was offset by the negative performance
relating to key big customers in 2016. If there is no meaningful
improvement in investments in the next 6-12 months, there
is a risk that N&W's leverage on a gross debt basis will not improve,
and, therefore, remain outside the level required to maintain
the B2 rating. Given the limited scope of further major profitability
improvements from an already very high level (EBITA margin of approximately
20% in FY 2016), we would expect that more meaningful profitability
improvements will depend on the integration of Saeco Vending.
Furthermore, some players in the industry have limited their investments
into the machine park optimizing their machines for cash flow generation
with a significant likelihood that this environment remains. However,
even in such a scenario, we expect N&W to generate decent positive
free cash flow, in line with its historical track record,
which supports the company's positioning at B2 level.
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 at approximately 20% in
2016 and our expectation that the company will be able keep its profitability
at around 19% 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.
N&W has adequate liquidity following completion of the announced transaction,
supported by a cash balance of approximately EUR50 million as of December
2016 and a revolving credit facility (RCF) of EUR40 million maturing in
2022 (unrated), with EUR11 million drawn as of December 2016.
We expect that N&W's liquidity sources including cash on balance sheet,
ca. EUR29 million undrawn RCF, decent free cash flow generation
and proceeds from tap issue amounting to EUR70 million are sufficient
to cover its liquidity needs over the next 12-18 months.
The needs include the envisaged repayment of drawn portion of the RCF,
purchase price for acquiring Saeco Vending, working capital swings
as well as capex. 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 EUR370 million
bond matures.
RATIONALE FOR INSTRUMENT RATING
The EUR370 million first lien senior secured notes issued by N&W Global
Vending S.p.A are rated B2, in line with the CFR,
despite the fact that they rank ahead of EUR100 million second lien senior
secured notes (unrated) that could provide some rating uplift from the
level of CFR. However, given the weak positioning of N&W
at B2, we decided not to notch up the EUR370 million above the level
of the CFR.
RATIONALE FOR NEGATIVE OUTLOOK
The negative outlook reflects material integration risk upon closing of
the fully debt financed transaction as well as a significant increase
in leverage to about 6.5x pro-forma for 2016. Nevertheless,
Moody's expectation is that N&W will in the 12-18 months
following the acquisition of Saeco Vending manage to maintain a Moody's-adjusted
EBITA margin in the high teen percentage range and debt/EBITDA at that
will move to 6.0x, while generating positive free cash flow
on a sustainable basis.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Moody's could stabilize the outlook if, following completion of
the Saeco Vending transaction, N&W manages to keep the expected
EBITA-margin decline under control and to swiftly reduce leverage,
indicated by leverage below 6.0x debt/EBITDA by year-end
2018 with a clear path towards that level until then.
An upgrade would require that N&W shows the ability to sustain its
strong profitability with Moody's adjusted EBITA margin at around 20%
and healthy free cash flow generation, while improving Moody's adjusted
gross debt/EBITDA sustainably below 5.0x (around 6.5x for
2016, pro-forma of the transaction).
Moody's could downgrade N&W's ratings, if the company fails
to reduce (1) gross debt/EBITDA, as adjusted by Moody's, to
6.0x by FY2018; (2) EBITA margin, as adjusted by Moody's,
deteriorates well below 20% on a sustainable basis; (3) free
cash flow, as adjusted by Moody's, deteriorates significantly
towards breakeven; 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 July 2014. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
Headquartered in Bergamo, Italy, N&W is the leading European
manufacturer of automatic vending machines for hot and cold drinks and
other food and beverage produces. It also produces coffee machines
designed for use in hotels, restaurants, cafeterias and offices.
The company operates under the two main brands: Necta (focused on
Western and Southern Europe, US and Emerging markets) and Wittenborg
(focused on Northern and Central Europe markets). In 2016,
N&W reported revenue of around EUR300 million, employing more
than 1,400 employees. N&W was acquired by funds controlled
by private equity firm Lone Star (unrated) for a total consideration of
roughly EUR670 million in March 2016. In addition, N&W
on 24 February 2017, announced to acquire Saeco Vending S.p.A.
for an undisclosed purchase price. Saeco Vending, headquartered
in Gaggio Montano,Italy, generated approximately EUR62 million
revenues in 2016 and employs approximately 330 employees.
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
SUBSCRIBERS: 44 20 7772 5454
Anke Rindermann
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
