We have reaffirmed our SR2 rating for ITM Entreprises (ITME) for its NEU CP program of up to €1,250m. ITME is a subsidiary of Les Mousquetaires SAS (LM, or the group).
Les Mousquetaires is the third-largest food retail group in France. It operates a franchisee business model, with the group in charge of upstream activities (wholesale, purchasing & logistics) while downstream (the running of local stores) is not part of the consolidated scope and is operated by local entrepreneurs, “the associates”. Our rating applies to the upstream operations. The group is ultimately owned by around half of its associates. It has diversified towards Belgium, Poland and Portugal in terms of geography and, in terms of activities, towards do-it-yourself (DIY) and mobility. However, French food retail & food processing are its main activities. The food retail activity focuses on supermarkets, with a significant rural positioning and with a physical presence on average each 17km in France. The group benefits from good price positioning which is made possible by, among other factors, its vertical diversification in food processing. The group has been strengthening its share of the French food retail market, reaching 15.7% at the end of March 2022 from 14% in early 2017.
The rating is underpinned by resilient demand, the group’s competitive position with a solid and growing market share, and its good positioning with low dependence on the poorly performing large hypermarkets, which are characterized by significant non-food products. We view the current high inflation as a manageable risk for food retailers even though it may put margins under pressure until the situation normalizes. The rating is further strengthened by a lean structure, with associates committed to and rewarded for running well their local businesses, and who are involved in the management of the group. However, we note that the governance is less transparent than usual standards in listed companies of this size.
The group posted a solid financial performance in 2021, with EBITDA growing by a mid-single-digit rate. Free cash-flow was positive – both before and after working capital variation. EthiFinance Ratings’ net adjusted debt-to-EBITDA ratio improved significantly, decreasing to 2.2x (FY21) from 2.8x (FY20) and 3.2x (FY19). EthiFinance Ratings’ adjusted net debt is very close to the reported figure with minor adjustments being made for employee benefits and no adjustment for operating leases, given their minor relevance. The financial indebtedness of the group is the result of significant investments made in real estate, including at the logistical centres. For its covenant calculation, the group disclosed a net corporate-debt-to-EBITDA ratio (excluding the property’s net debt and EBITDA) of 0.56x as of end-2021 (down by c. 0.25x compared with end-2020 or end-2019). In terms of LTV, our total net debt-to-real estate value decreased to 53% from 65% with c. 80% of the improvement stemming from the reduction in net debt and c. 20% from the increase in portfolio value (c. €3.5bn).
We expect some moderate deleveraging for the coming years, although the intensity of investments made in network development could slightly hamper this trend. The group has recently announced the acquisition of Mestdagh, a food retailer operating in Belgium. At this stage, based on the information provided, we do not expect any material impact on ITME’ short-term rating. At end 2021, Mestdagh operated 87 supermarkets and reported annual revenues of €694m.
Group indebtedness is concentrated in ITME (50% of the debt), and in the property companies (20% of the debt). ITME is the main holding company, at the statutory level. It has a limited real estate portfolio of €35m but it owns the other group subsidiaries. IEM is the main property company with a €1.5bn real estate portfolio.
The group indebtedness relies on (i) 8 relationship banks (syndicated facilities, amortizing loans, asset-backed facilities, representing c. 20% of the gross debt), (ii) private placements subscribed to by institutions (32%), (iii) NEU CP (c. 18%), along with (iv) associates (18%). The debt with associates includes short-term deposits collected from the associates and their operating companies as well as c. €70m of bonds subscribed to by the associates.
The group’s banking facilities are restricted by covenants, including a LTV ratio capped at 50% (18% at end-2021), a corporate debt-to- corporate EBITDA ratio capped at 2.75x (0.56x at end-2021), and a corporate debt-to-corporate equity ratio of up to 100% (21% at end-2021).
We view the liquidity profile of the group as solid.
The funding mostly relies on (a) long-term general corporate financing from relationship banks & financial institutions, and (b) short-term financing. The tenure of the long-term financings runs between five and ten years, relatively long maturities but still shorter than usual real estate-based financing and so this debt requires recurrent refinancing, which the group is used to.
The short-term financings are mostly composed of the NEU CP program (€577m drawn at end-2021) and short-term debt towards its associates (€500m being short-term deposits at end-2021).
The group has €1.8bn of RCFs with c. 22% maturing in 2023, 42% in 2024, 21% in 2025, and 15% beyond 2025. Despite the long maturities of its RCFs, we assign a liquidity score of 2/3 which is somewhat impacted the reliance on short-term financings. Our assessment also factors in the seasonal working capital variation.
Credit Metrics Expected Evolution (CMEE): Stable
Our Stable CMEE reflects our expectation that credit metrics will be maintained at a broadly similar level over the next 12 months.
An upgrade in our rating to SR1 could be triggered if the company deleverages significantly. We see such a scenario as feasible in the event of significant real estate asset disposals.
A downgrade to SR3 could be triggered by an unexpected deterioration in credit metrics or developments leading us to expect such a deterioration, reflected in a change to a negative CMEE along with a deterioration in the liquidity profile.
Initiation report: Initiation at SR2 on 03 July 2020
Last rating action: Reaffirmed at SR2 on 02 July 2021
Rating nature: Solicited short-term public rating
With rated entity or related third party participation: Yes (the rating was published after having been reviewed by the issuer).
With access to internal document: Yes
With access to management: Yes
Ancillary services provided to the rated entity: No
Name of the rating committee chair: Thomas Dilasser, Senior Credit Analyst.
Material sources used to support the rating decision:
- Financial statements 2021, 2020, 2019
- Discussions with management and management presentation
Limitation of the Rating action:
EthiFinance Ratings believes the quality and quantity of information available on the rated entity is sufficient to provide a rating.
EthiFinance Ratings has no obligation to audit or verify the accuracy of data provided.
Principal methodology used in this research and the meaning of each rating category is available at:
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