Euler Hermes Rating has downgraded Grammer AG’s rating from BBB- to BB+. According to the rating agency, the downgrade is driven by an increase in financial risk resulting from the direct and indirect consequences of the COVID-19 pandemic. Persistent market challenges may create additional pandemic- and recession-driven revenue and earnings risks in the au-tomotive sector in the short term. Analysts therefore expect the rating to deteriorate over the next twelve months.
In the rating agency’s view, Grammer AG recently improved its diversification and strengthened its access to the US market by integrating Toledo Molding & Die, Inc. (TMD) into its organisation. Euler Hermes Rating sees the company as having unique selling propositions in some of its core markets, which allows it to occupy a globally leading position in the market for offroad seats. In the analysts’ view, Grammer is one of the smaller international Tier 1 suppliers in the automotive sector. The company’s new management partly realigned the or-ganisation, emphasising operational excellence and digitalisation, which the agency views as a rating strength given the structural changes sweeping the sector. The company operates exclusively in cyclical sectors that are subject to slightly increased to increased sector volatility, which has been exacerbated by the economic fallout of the COVID-19 pandemic.
Financial risk increased slightly in the period under analysis due to a decline in earnings power and profitability with financial debt increasing due to acquisitions. In 2019, the company im-proved earnings power and generated positive free cash flow as budgeted. Analysts expect its performance to be affected by negative effects of the COVID-19 pandemic in 2020 and 2021, which will slow the planned deleveraging. Euler Hermes Rating expects the crisis will generally weaken financial ratios and cash flow over the short to medium term. It also ex-pects leverage to increase temporarily due to additional borrowing in order to bridge the nega-tive cyclical and sales effects of the pandemic. In the rating agency’s view, Grammer AG generally has a high internal financing potential, which was recently strengthened by the inte-gration of TMD. The syndicated loan taken out in February 2020 ensures the company’s medium- to longterm funding. Euler Hermes Rating rates the company’s financial flexibility as adequate overall thanks to its vigorous crisis and working capital management.
Grammer AG specialises in developing, manufacturing and selling components and systems for car interiors as well as suspension driver and passenger seats for offroad vehicles, trucks, buses and trains. In the 2019 financial year, Grammer generated over € 2 billion in group revenue with 14,900 employees (average for the year).
Euler Hermes Rating GmbH (Euler Hermes Rating) was founded in 2001 as an independent European rating agency of the Euler Hermes and Allianz Group focusing on issuer and issue ratings. Euler Hermes Rating is registered as a credit agency (CRA) in accordance with Regulation (EC) of the European Parliament and Council (as amended) and is considered as an external credit assessment institution (ECAI) by the European Banking Authority (EBA). Euler Hermes Rating is a subsidiary of Euler Hermes (ELE: PA), the world leader in trade credit insurance.
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