Pfleiderer Group B.V.&Co. KG

The stable outlook reflects our expectation that Pfleiderer will generate material positive FOCF in 2020 and 2021. We expect adjusted EBITDA margins over 14% for 2020 and funds from operations (FFO) to debt of about 17%-18%. We expect the group's financial policy to support a debt-to-EBITDA ratio no higher than 4.5x. We could lower the rating if: FOCF were negative over an extended period. Adjusted debt to EBITDA increased above 4.5x. FFO to debt fell below 16%. Pfleiderer's liquidity position deteriorated or its covenant headroom tightened significantly. The group engaged in large-scale, debt-funded shareholder returns or acquisitions that further increased leverage. We are unlikely to raise the ratings over the next 12 months as we view the sponsors' financial policy

...S&P Global Ratings expects a revenue decline of 7%-8% in 2020. Demand for Pfleiderer Group B.V. & Co. KG's products was hit in 2020 by the local lockdowns implemented to curb the spread of COVID-19. Although sales recovered from June, we expect 2020 volumes to remain below 2019 levels . Revenues also declined due to the pass-through of lower raw material prices to customers. We forecast an improvement in the EBITDA margin in 2020. We assume that S&P Global Ratings-adjusted EBITDA margins will increase to about 14.2%-14.7% in 2020 from 10.8% in 2019. We expect this improvement will be supported by lower exceptional costs, efficiency improvements, and lower raw material prices. These factors will only partly be offset by lower volumes due to the outbreak of COVID-19. Our base-case credit metrics remain commensurate with the 'B+' rating. We forecast S&P Global Ratings-adjusted debt to EBITDA of 4.1x-4.3x for year-end 2020 and 3.7x-3.8x for year-end 2021 (up from 5.2x in December 2019). We...

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