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Moody's Credit Opinion

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Moody's Credit Opinion CORPORATES CREDIT OPINION CECONOMY AG 19 May 2021 Update following outlook change to stable Update Summary CECONOMY AG's (Ceconomy) Ba1 corporate family rating (CFR) reflects the company's position as Europe’s largest electronics retailer, with geographically diversified operations; strong distribution network and improving multichannel capabilities; conservative financial profile, supported by low funded debt and short lease commitments; good liquidity despite RATINGS our expectations of limited free cash flow (FCF) in the next 12-18 months; and equity stake in CECONOMY AG FNAC DARTY SA (Fnac, Ba2 stable) and the potential long-term benefits it can bring. Domicile Dusseldorf, Germany Long Term Rating Ba1 Ceconomy's Ba1 rating is constrained by the company's weak profitability and thin margins Type LT Corporate Family relative to peers; the negative impact of the coronavirus pandemic, notably extended Ratings shopping restrictions in Germany, which will constrain the recovery in earnings and margins Outlook Stable in 2021; the highly competitive, value-driven consumer electronics market, with the Please see the ratings section at the end of this report accelerated shift to online creating some structural margin dilution; and the discretionary for more information. The ratings and outlook shown and very seasonal nature of demand for large parts of the company’s product range. reflect information as of the publication date. Exhibit 1 Leverage remains low for the rating category despite the impact of the pandemic Contacts Moody's-adjusted gross debt/EBITDA Debt / EBITDA Upward rating trigger Downward rating trigger Jeanine Arnold +33.1.5330.1062 4.5x Associate Managing Director [email protected] Guillaume Leglise +33.1.5330.5979 4.0x Vice President - Senior Analyst [email protected] 3.5x Florian Belhiteche +33.1.5330.1028 Associate Analyst [email protected] 3.0x CLIENT SERVICES 2.5x 30/09/2014 30/09/2015 30/09/2016 30/09/2017 30/09/2018 30/09/2019 30/09/2020 LTM Q1 30-09-2021 30-09-2022 Americas 1-212-553-1653 2021 (F) (F) Asia Pacific 852-3551-3077 Forecast leverage represents Moody's forward-looking view, not the view of the issuer. Source: Moody's Financial Metrics™ Japan 81-3-5408-4100 EMEA 44-20-7772-5454 This report was republished on 14 June 2021 with Issuer Ratings (Long-term and short-term) removed from Exhibit 14. The company’s Issuer Ratings were withdrawn on 19 May 2021. MOODY'S INVESTORS SERVICE CORPORATES Credit strengths » Largest European consumer electronics retailer, with geographically well-diversified operations across 13 countries » Leading market positions in Europe, supported by strong brand recognition » Strong distribution network and improving multichannel capabilities » Low funded debt and short lease commitments » Good liquidity and conservative financial policy Credit challenges » Continued shopping restrictions will continue to weigh on earnings and cash flow in 2021 » Exposure to seasonal activities and discretionary products » Highly competitive market, with consumers shifting to online » Limited scope for revenue growth and thin profit margins » Highly seasonal business with large working capital swings Rating outlook The stable outlook reflects our expectations that trading conditions will improve during the second half of 2021, supporting the company’s key credit metrics, which are likely to remain adequate for the rating category in the next 12-18 months. We expect a gradual recovery in Ceconomy’s profitability over time as the company makes progress on its medium-term transformation plan. The outlook also incorporates our assumption that the company will maintain its current conservative financial policy and good liquidity profile. Factors that could lead to an upgrade Upward pressure could emerge over time if: » Ceconomy demonstrates sustained margin enhancement, with Moody's-adjusted EBIT margin of around 3.5%; » its Moody's-adjusted leverage remains below 3.0x; » its retained cash flow (RCF)/net debt remains above 25% on a sustained basis; and » the company maintains prudent financial policies and generates positive FCF on a sustained basis. Factors that could lead to a downgrade Conversely, a downgrade of the company’s ratings would likely occur if: » the macro environment weakens and consumer spending is sustainably affected; » Ceconomy’s gross leverage is above 4.0x on a sustained basis; » its RCF/net debt is below 20% on a sustained basis; and » its liquidity weakens or FCF remains negative on a sustained basis. This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history. 2 19 May 2021 CECONOMY AG: Update following outlook change to stable MOODY'S INVESTORS SERVICE CORPORATES Key indicators Exhibit 2 Ceconomy AG 9/30/2017 9/30/2018 9/30/2019 9/30/2020 3/31/2021(L) 12-18 months view Revenue (EUR Million) 21,605 21,418 21,455 20,831 21,165 21,000 - 21,500 EBIT / Interest Expense 3.1x 2.9x 2.4x 3.3x 3.9x 2.5x - 5.0x RCF / Net Debt 23.2% 24.6% 36.0% 46.3% 36.3% 45% - 60% Debt / EBITDA 3.4x 3.2x 3.5x 2.9x 2.8x 2.7x - 3.2x All ratios are based on 'Adjusted' financial data and incorporate Moody's Global Standard Adjustments for Non-Financial Corporations. This represents Moody's forward view, not the view of the issuer, and unless noted in the text, does not incorporate significant acquisitions and divestitures. Source: Moody's Financial Metrics™ Profile Headquartered in Düsseldorf, Germany, Ceconomy is Europe's largest consumer electronics retailer, operating two brands — Media- Markt and Saturn. The company, with revenue of €21.2 billion in the 12 months that ended on 31 March 2021, is listed on the Frankfurt Stock Exchange and had a market capitalisation of around €1.9 billion as at 18 May 2021. The company has four anchor shareholders: Haniel, Meridian Stiftung, freenet AG and Beisheim. Following an agreement announced in December 2020, Convergenta will become Ceconomy’s largest shareholder, with 25.9% of voting rights, once the capital increase closes during the summer 2021. Ceconomy owns an around 24% stake in French consumer electronics retailer Fnac. Ceconomy includes its proportion of Fnac's earnings in its reported EBITDA and EBIT. However, in accordance with our standard practice, we remove this income from Moody's- adjusted calculations of profitability and relevant credit metrics. The company emerged from the demerger of the former METRO Group, whose operations were split in July 2017 between Ceconomy and Metro Wholesale & Food Specialist. Since then, both Ceconomy and METRO AG (Metro, Ba1 stable) are subject to a joint and several liability, stipulated by the German Transformations Act (German Law), which covers existing liabilities from before the demerger for five years (10 years for pension liabilities). As Metro assumed almost the entire funded debt of the former Metro group, there is a risk that Ceconomy could be liable for a significant portion of Metro’s debt should Metro default. However, this guarantee mechanism will end in July 2022, and a default of Metro appears unlikely within this short period. Exhibit 3 Exhibit 4 Diversified revenue in Europe … … but with some earnings concentration in Germany Revenue breakdown for the 12 months that ended in March 2021 Breakdown of EBITDA before special items for the 12 months that ended in March 2021 (excluding the segment “Others”) Eastern Europe Eastern Europe Other 5% 8% 2% Western & Southern Europe 29% Western & Southern Europe 32% Germany, Austria, Switzerland, Hungary Germany, 58% Austria, Switzerland, Hungary 66% Source: Ceconomy's quarterly statements and 2020 annual accounts Source: Ceconomy's quarterly statements and 2020 annual accounts 3 19 May 2021 CECONOMY AG: Update following outlook change to stable MOODY'S INVESTORS SERVICE CORPORATES Detailed credit considerations Good management of the pandemic and low funded debt give time for earnings to recover Ceconomy has well managed the pandemic and limited the impact that the crisis has had on its operations and financials in the last 12 months. Despite its weak earnings in the 12 months that ended in March 2021 because of store lockdowns, Ceconomy has maintained good credit metrics. We estimate that the company’s leverage (Moody’s-adjusted gross debt/EBITDA) was 2.8x as of the end of March 2021, a low level for the rating category. This mostly reflects the company's low funded debt. Since its separation from Metro, Ceconomy's credit profile has benefited from a conservative financial profile. As of 31 March 2021, the company reported funded debt of €345 million, equivalent to less than 1x its reported EBITDA in fiscal 2020. As of the end of March 2021, Ceconomy reported total debt of around €2.4 billion, which mostly comprised capitalised operating lease liabilities of around €2 billion. This low level of funded debt gives the company sufficient financial flexibility and time to recover its earnings to more appropriate levels for the current rating category. Because of the impact of the pandemic since the beginning of 2021, we expect Ceconomy's profit to remain low, but almost in line with that in the fiscal year that ended in September 2020 (fiscal 2020). Over the next 18 months, the company has the potential to recover its profitability, as trading conditions normalise and the cost savings associated with the company's ongoing transformation programme start to materialise. We expect the company's leverage to remain around 3.0x in fiscal 2021 and trend towards 2.5x thereafter. Pandemic-induced risks persist, as illustrated by the extended shopping restrictions in Germany since mid-December. However, the impact of the store lockdowns in the beginning of 2021 will be less pronounced than in spring 2020, because the company is better prepared and has strengthened its online and logistic capabilities since then.
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