Soco 1

The outlook is negative because, despite its resilience to the depressed COVID-19 macroeconomic environment, Socotec will generate only limited FOCF in 2020, due to continued high restructuring costs. The outlook also reflects high leverage of above 11.0x in 2020 and funds from operations (FFO) cash interest coverage below 2.0x with the risk that credit metrics do not recover in 2021. We could lower the rating if integration challenges or economic headwinds resulted in weak operating performance, such that Socotec generated consistently negative FOCF, or adjusted debt to EBITDA increased to and was sustained above 8x. We could revise the outlook to stable if Socotec showed improved profitability as a result of declining restructuring costs and consistently positive operating performance, and

...Soco 1's (Socotec's) stable performance in 2019 was supported by the midyear acquisition of Vidaris. The company posted solid topline growth spurred by good performance across all divisions. S&P Global Ratings-adjusted EBITDA margin improved to 13.3% driven by the contribution of higher-margin Vidaris and Schollenberger in Germany (infrastructure and energy business). This solid operating performance generated free operating cash flow (FOCF) of 23 million and contributed to deleveraging to 8.3x at year-end 2019, from 8.6x at year-end 2018, despite the addition of 318 million of debt to fund the Vidaris acquisition in 2019. Therefore, performance remained in line with our expectations. We expect Socotec's credit metrics will remain commensurate with the current 'B' ratings, despite effects from the COVID-19 pandemic, supported by comfortable liquidity. From 2021, we expect a significant improvement of credit metrics, spurred by strong operational performance. In our base case, we assume...

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