Research Update: French Fresh Food Retailer ZF Invest (Prosol) Downgraded To 'B-' On Weaker Profit And Credit Metrics; Outlook Stable

ZF Invest, the holding company of Prosol Group, reported two consecutive quarters of weak profitability and negative free operating cash flow (FOCF), resulting in very high S&P Global Ratings-adjusted leverage of 10.2x (about 9.3x excluding shareholders' convertibles) for the 12 months ended March 31, 2022. An inflation-related increase of the cost base, including cost of goods sold and personnel expenses, combined with normalization of demand for fresh food after lifting of pandemic-related restrictions, halved the adjusted EBITDA margin to about 5.7% in the six months ended March 31, 2022, from 10.7% in fiscal year ended Sept. 30, 2021 (FY2021). Consequently, we lowered our long-term ratings on ZF Invest and its term-loan B (TLB) to 'B-' from 'B'. The stable outlook

...- ZF Invest, the holding company of Prosol Group, reported two consecutive quarters of weak profitability and negative free operating cash flow (FOCF), resulting in very high S&P Global Ratings-adjusted leverage of 10.2x (about 9.3x excluding shareholders' convertibles) for the 12 months ended March 31, 2022. - An inflation-related increase of the cost base, including cost of goods sold and personnel expenses, combined with normalization of demand for fresh food after lifting of pandemic-related restrictions, halved the adjusted EBITDA margin to about 5.7% in the six months ended March 31, 2022, from 10.7% in fiscal year ended Sept. 30, 2021 (FY2021). - Consequently, we lowered our long-term ratings on ZF Invest and its term-loan B (TLB) to 'B-' from 'B'. - The stable outlook reflects our view that ZF Invest's leverage will be 11x-13x (or 10x-12x excluding convertibles) in FY2022 and close to 8.0x in FY2023, while EBITDA margins recover to 9.0%-10% in FY2023 from 6.0%-7.0% in FY2022; we...

Research Update