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Fixed Income Special
French High Yield Specialty Retail
Authors:
Jannik Prochnow
Analyst
+49 69 913090 595
[email protected]
Dwight Bolden
Research Support
+49 69 913090 597
[email protected]
8 December 2014
Overview
1. Recommendation and spreads
3
2. Company profiles
7
2.1 Alain Afflelou
8
2.2 Darty
15
2.3 THOM Europe
22
3. Appendix: Macro-environment
29
4. Disclaimer
35
5. Contacts
42
08/12/2014
2
2. Recommendation and spreads
Recommendations*
Overweight on Darty and THOM, marketweight on Afflelou
Recommendations:
(Screening Coverage)
Alain Afflelou is the largest optical franchisor and third-largest optical retailer in France with a network of more
than 1,160 stores. We like the company’s strong competitive position and brand recognition, which is mainly
attributable to above-average advertising and marketing expenditures. Moreover, we want to highlight the
supportive regulatory environment for the French optical retail market, leading to a stronger resilience against
cyclicality, which is even further levered through Afflelou’s asset-light franchise model. However, the
company’s weak geographic diversification outside of France and high leverage weigh significantly on its
overall credit profile. Despite a positive FCF generation, profitability has been weak for years due to high
financial expenses. Although we regard the launch of the e-commerce platform as a step in the right direction,
it happened too late in our view. Considering everything, we initiate on the notes due in 2019 a marketweight
recommendation, as we do not see significant performance catalysts in the near future and believe that the
company’s good business model, decreasing its cyclical exposure, is already fairly reflected in market prices.
AAFFP 5 ⅝ 04/19
Senior Secured Notes
Price / Z-spread / YTW:
93.6 / 699 / 7.4
(Pricing: 05/12/2014 BGN Close)
Marketweight
Darty is the largest French electrical retailer with additional presences in Belgium and the Netherlands. We
like the company’s leading market position and particularly want to highlight its strong brand awareness in
France. Furthermore, we see Darty’s distinctive customer service offerings as a key strength and view its
comprehensive multi-channel distribution system with an increased online focus as a key differentiating factor.
Also the company’s recent subsidiary disposals can be regarded as credit positive, albeit noticing that this
reduced Darty’s geographic diversification. The strong dependence on the French market is one of Darty’s key
weaknesses as the market has contracted in recent years. In addition, the company’s former international
operations led to large accumulated losses and negative shareholder’s equity, while leverage has constantly
increased. Overall, we like Darty’s business profile most compared to Afflelou and THOM and believe that the
market remains too cautious on its bond. Therefore, we initiate on Darty’s senior unsecured notes due 2021
an overweight recommendation and see further tightening potential towards its similar rated peers.
DRTYLN 5 ⅞ 03/21
Senior Unsecured Notes
106.2 / 395 / 4.2
Overweight
THOM is the largest jewellery and watches retailer in France, with a focus on the low to medium price
segment. The company operates under the three well-known brands Histoire d’Or, Marc Orian and TrésOr,
which enables THOM to target a broader range of customers by applying different pricing strategies, resulting
in a reduction of the company’s cyclicality. We are particularly regarding the proven flexibility of the company’s
supply chain and logistics as credit positive, as this mitigates risks arising from changing consumer
preferences. However, from a negative perspective, THOM is heavily dependent on the French jewellery
market, which is also subject to seasonality, and highly leveraged, which we expect to continue in the future
due to its financial sponsor ownership. All in all, we believe that THOM continues to successfully generate
positive FCFs which could be used for further expansion and/or deleveraging. We initiate on THOM’s senior
secured notes an overweight recommendation as we believe the bond should trade tighter vs. similarly rated
peers, especially vs. Afflelou, which has a comparable financial risk profile but fewer upside catalysts.
08/12/2014
Source: Berenberg FI Research; *Our recommendations are based on a fundamental analysis & a relative valuation based on market spreads
THOEUR 7 ⅜ 07/19
96.3 / 797 / 8.4
Overweight
4
Spread landscape*
Plenty shopping opportunities for investors within retailing
1,000
HEMABV 06/19
IKKSFR 07/21
MDMFP 08/20
900
800
THOEUR 07/19 and AAFFP
04/19 both trade near the
single-B consumer curve
while Afflelou offers the
lowest spreads of all single-B
retail issuers.
THOEUR 07/19
BUTSAS 09/19
SMCPFP 06/20
Z-spread (in bp)
700
AAFFP 04/19
(B) Consumer
600
500
400
On average, single-B
consumer bonds trade
c.100bp wider than single-B
non-financials.
(B) Non-Financials
DRTYLN 03/21
300
DUFSCA 07/22
(BB) Non Financials
200
We note that Darty (BB-)
trades approximately twice as
high as the double-B
average.
HBMGR 02/20
100
0
0
08/12/2014
1
2
3
4
Time to worst
5
6
7
Source: Bloomberg (05/12/2014), Berenberg Fixed Income Research; *Outliers not shown and excluded from curve estimation
8
5
Spread performance
Investors have already started Christmas shopping at Darty
145
140
Indexed z-spread (15/07/2014=100)
135
After a significant spread
widening between
September and October, the
market has only partly
recovered yet. While THOM
performed in line with the
market most recently,
Afflelou has
underperformed.
130
125
120
115
110
105
Darty has strongly
outperformed the market,
currently trading at levels
seen in July this year.
100
95
90
01/07/2014
01/08/2014
01/09/2014
BofA ML B Corporates (OAS)
DRTYLN 03/21
08/12/2014
Source: Bloomberg (05/12/2014), Berenberg Fixed Income Research
01/10/2014
01/11/2014
01/12/2014
AAFFP 04/19
THOEUR 07/19
6
2. Company profiles
2. Company profiles
2.1 Alain Afflelou
Alain Afflelou
Investment thesis and company snapshot
Alain Afflelou
Recommendation:
AAFFP 5 ⅝ 04/19 (Bloomberg: AAFFP <Corp>)
Marketweight
Company data
Investment thesis
Headquarter:
Paris (France)
Berenberg initiates a marketweight recommendation on Afflelou’s 04/2019 bond. We particularly like the company’s leading
position and brand identity in the French optical retailing market. However, the company’s low geographic diversification and
high leverage negatively impact our assessment. As we believe that Afflelou’s key performance driver, the resilient and less
cyclical business model, is already fairly reflected in market prices, we do not see any crucial catalysts for the near future.
Strengths
Weaknesses
•
•
Largest franchisor in France and third largest optical
retailer in France with above-average sales per store
Diversified revenue sources
Strong brand recognition, especially in France
Good track-record of new product developments
Low capital intensity of franchising business
•
•
•
•
•
•
•
Products:
Frames, lenses, contact lenses,
sunglasses, related care
products and accessories
Major shareholders:
Lion Capital (69%), Apax France
(14%), Afflelou family (14%),
Management (3%)
Weak geographical diversification, significant
dependence on the French market
Still weak online presence and late launch of platform
Strong dependence on Chinese intermediary agent
supplying frames and sunglasses
Declining LFL sales in a modestly growing market
Bond data
93.6 / 699 / 7.4
Company Snapshot
Alain Afflelou is a French optical retailer with a network of more than 1,160 stores, of which the majority is franchised. The
company mainly operates in France and Spain, where it has leading market positions, with additional presences in nine
other countries. The product range includes proprietary and exclusively licensed frames and sunglasses, own-brand
(contact) lenses and third-party optical products and accessories. In addition to its stores, the company launched an online
platform in March 2014.
Callable:
Yes
Z-spread (in bp)
1,000
Bond ratings:
B2/B/BB- (Moody’s/S&P/Fitch)
Selected Financials
THOEUR
07/19
800
AAFFP
04/19
600
DRTYLN
03/21
400
200
0
0
08/12/2014
Amount outstanding (€):
365m
1
2
3
4
5
Time to worst
6
7
8
€m
2011
2012
2013*
2014
Sales
192.3
286.0
329.8
323.9
Net Income
10.5
-6.9
-24.9
-39.9
Adj. EBITDA
67.7
87.0
82.3
92.1
Adj. FFO
50.1
66.8
36.0
54.1
Adj. FCF
57.0
56.2
17.5
20.4
Adj. Net Debt/EBITDA
7.3x
6.3x
8.2x
8.1x
Source: Company data, Bloomberg (05/12/2014), Berenberg FI Research; *2013 figures refer to 14 months period (01/06/2012–31/07/2013)
Major Covenants:
i.a. Change of Control,
Limitation on Indebtedness,
Limitation on Restricted
Payments, Limitation on Asset
Sales, Limitation on Liens,
Merger and Consolidation
Payment rank:
Senior secured
9
Alain Afflelou
The French optical retail market
Industry characteristics
Optical products can generally be categorised as medical products such as corrective lenses, frames and contact lenses or
non-medical products such as sunglasses, protective equipment and other accessories. The majority of sales within the
French market stems from corrective lenses (59%), followed by frames (23%) and contact lenses (8%). The latter are still
underrepresented in France as can be seen at the example of Spain, where contact lenses account for 16% of total sales.
The French optical retailer market is very fragmented as it comprises a broad range of players, which are organised either as
retail chain networks (franchised opticians, e.g. Alain Afflelou and Générale d’Optique), cooperative networks (grouped
opticians, e.g. Optic 2000 or Krys), mutualist networks (employed by health insurance companies) or independent opticians.
Overall sales volumes showed slow, but steady growth over the recent years. The market has grown at an estimated CAGR
of 0.6% since 2008, reaching €5.5bn in 2013 and proven to be stable even during economic downturns.
Technology
Private Health Insurance System
•
High reimbursement rates due to
private health insurance plans
Higher reimbursement incentivize
policyholders to purchase at
opticians from care network
•
Significant improvements in
technology over past years
Advanced technology led to larger
average basket sizes
Strong demand for innovation
•
•
Optical
retailing
•
Shift towards older population
Share of people wearing
prescription glasses steadily
increases with age (e.g. in France
93% of people 60+ wear glasses)
•
5,000
Other
Demographic shift
•
Increasing exposure to digital
displays
•
Frames as fashion accessory
Retail Chain networks
36%
Independent opticians
3,000
Shipping development
80%
10%
Sunglasses
60%
0%
Contact lenses
40%
-10%
2,000
Frames
1,000
Corrective lenses
0
'10
'11
'12
'13e
Source: Company data, SWV, Berenberg Fixed Income Research
Threats
Optical market volumes by product category (2013 estimates)
4%
7%
8%
23%
4,000
€m
Cooperative networks
39%
10%
20%
100%
'09
•
Mutualists
6,000
08/12/2014
15%
Increasing exposure to digital
displays (smartphones, tablets,
laptops, TVs, etc.)
Frames have become accepted
fashion accessory
Evolution of optical retail sales in France
'08
Resilient market, mainly due
to supportive private health
insurance system
Social Life
Demographics
•
•
•
Market share by retailer category in France (2012)
Industry forces
•
Opportunities
2%
14%
16%
21%
Other
30,000
•
Slow growth of optical retail
market is expected to continue
•
Lagging economic recovery in
France
•
Highly competitive,
fragmented market
•
Shortage of ophthalmologists
in France
20,000
Sunglasses
10,000
Contact lenses
0
'02 '04
'10 '12 '14Frames
'16
59% '06 '08 48%
20%
Demand (world container trade, Y/Y)
Corrective lenses
Supply (containership fleet development, Y/Y)
0%
Aver.
containership earnings*
(rhs, USD/day)
France
Spain
10
Alain Afflelou
Strategic positioning
Strategic direction
Afflelou’s revenue split by source (2014)*
Alain Afflelou (AA) is organised as a retail chain network and generates by
far the majority of revenues from its franchisor business, in which AA
provides various services to its store network and suppliers: (i) purchasing
products through central purchasing units in France and Spain, (ii) trading of
exclusive frames and sunglasses as wholesaler, (iii) licensing network stores
to sell own-brand lenses and contact lenses, (iv) developing and
implementing the company’s advertising and communication strategy, (v)
providing the commercial strategy and know-how in exchange for an entry
fee and ongoing royalties, and (vi) listing suppliers in AA supplier directory.
6%
1%
Others
6%
6%
Berenberg
competitive scoring
Licensing
Listing
10%
Entry fees & royalties
19%
28%
In addition to its franchised stores, AA also operates directly-owned stores, in
which the company regularly tests new commercial initiatives and sets best
practices for the franchised stores.
Sensitivity to macro cycles
low / average / high
Trading
Communication
24%
Regulatory risks
Purchasing
Directly-owned stores
In March 2014, AA launched its online platform offering contact lenses and
care products to complement its traditional brick-and-mortar stores.
Since the passing of the Leroux Law - which allows mutual health insurers to differentiate reimbursement payments on
whether policyholders purchase at an optician within the care network or not - in 2013, AA has changed its strategy and
encouraged its network stores to join care networks.
Afflelou’s store count in France vs. competitors (2012)
1,400
79
Lissac
206
Vision Plus
338
Optical Center
351
Number of stores
189
448
Alain Afflelou
1,000
800
Atol
1,107
0
500
1,000
263
271
24
266
45
47
54
23
26
74
25
286
64
400
1,500
650
686
712
733
725
Distribution strategy
weak / average / strong
600
550
500
Brand awareness
450
Profitability
400
0
853
Optic 2000
71
200
809
Krys
63
68
600
706
Financial policy
conservative / sound / aggressive
700
1,200
Grand Optical
Générale D'Optique
08/12/2014
Evolution of store network and sales**
48
Optical Discount
Competitive position
€m
Claro by Afflelou
Scale & geographic
diversification
Revenue & cash flow volatility
350
'11
FR (AA)
Portugal (AA)
'12
'13
FR (CLARO)
Other
'14
Spain (AA)
Sales (rhs)
Source: Company data, Berenberg FI Research; *Interactivity eliminations not considered; **2013 sales figure refers to 14 months period
11
Alain Afflelou
Focus on bond structure
Capital structure
Maturity profile
500
€m
400
75
300
200
365
189
100
30
0
Super Senior RCF
Senior Notes
Convertible Bonds
€m
2014
Cash & Cash Equivalents
Senior Secured Notes (5.625% - 5y)
Senior Notes (7.875% - 5y)
Accrued Interest (as of 31 July 2014)
Convertible Bonds (15y)
Other debt (incl. e.g. financial leases)
Amortisation of borrowing costs
22.5
365.0
75.0
6.2
189.4
7.2
(11.3)
Net debt
609.1
8.1x
Adj. Net debt (lease adjusted)
766.2
8.1x*
Super Senior RCF – undrawn (4.5y)
30.0
xEBITDA
AAFFP 5⅝ 04/19
Issuer:
3AB Optique Développement
Guarantor(s):
Lion Seneca France (1&2) &
Alain Afflelou Franchiseur
Maturity
04/2019
04/2019
Major Covenants**
07/2027
Change of Control (CoC):
Put at 101% on acquisition
≥50% of voting shares or sale of
all/substantially all assets
Limitation (LMT)
on Indebtedness:
Limited additional debt unless
FCCR≥2.0x after incurrence
10/2018
LMT on Restricted Payments:
No dividends or redemption of
stock/subordinated debt and no
investments unless incurrence
of min. €1 debt under LMT on
Indebtedness covenant possible
Corporate structure
Issuer of the Notes
Guarantors of the Notes
Lion/Seneca
France 1
LMT on Asset Sales:
No disposal, lease or transfer of
assets unless at fair value or
75% of sales value received in
cash/cash equivalents or used
to reduce debt within 365 days
Senior Notes Restricted Group
Lion/Seneca
France 2
SNs: € 75m
Sr. Bondholders
Senior Secured Notes Restricted Group
SSRCF lenders
SSRCF:
€ 30m
3ABOD
FP2A
08/12/2014
SSNs:
€ 365m
LMT on Liens:
No lien unless notes and notes
guarantees equally and rateably
secured
Sr. Sec Bondholders
Merger and Consolidation:
No merger or consolidation
unless surviving company could
incur min. €1 debt under LMT on
Indebtedness covenant
Alain Afflelou
Franchiseur
Source: Company data, Berenberg FI Research; *Lease adjusted EBITDA; **Certain exemptions may apply to the covenants
12
Alain Afflelou
The rating agencies’ view
The rating agencies’ opinion*
•
Good market presence (M, S&P, F)
•
High leverage (M, S&P)
•
Supportive regulatory environment in France
(M,S&P)
•
Limited scale and weak geographic diversification
(M, S&P, F)
•
Strong brand recognition (M, S&P, F)
•
•
Strengths related to Afflelou’s franchise model
(M, S&P, F)
Focus on very competitive and fragmented
French market (M)
•
Recent decline in LFL sales (M)
•
Positive underlying market drivers, e.g
demographics (F)
•
Late launch of e-commerce platform (F)
Corporate Family: B3
•
Risk of regulatory changes (F)
Senior Secured: B2
Ratings
Moody’s:
Senior Unsecured: Caa2
Rating pressure could arise from*…
Outlook: Stable
•
sustainable improvement in earnings trend (M)
•
if FCF turn negative (M)
•
Debt/EBITDA materially and sustainably below 6.0x
and a RCF/ net debt approaching 15% (M)
•
Debt/EBITDA approaching 7.0x (M)
•
if the adj. EBITDA does not improve from €68m in
FY 2013 (S&P)
•
EBITDA margin consistently < 21%, FFO/debt
>7.0x or no evidence of deleveraging, FFO
coverage <1.8x or FCF margin <8% (F)
•
Debt/EBITDA approaching 5.0x (S&P)
•
EBITDA margin >22%, FFO/debt <5.0x and FFO
coverage >2.5x (F)
Last update: 08/07/2014
S&P:
Corporate Family: B
Senior Secured: B
Senior Unsecured: CCC+
Outlook: Stable
Threshold for rating pressure…
Adjusted Debt/EBITDA (M)*
Adjusted RCF/Net Debt (M)*
8.0x
20%
17.8%
Fitch:
threshold for upward rating pressure
threshold for downward rating pressure
7.0x
15%
6.0x
Corporate Family: B
14.1%
6.5x
Senior Secured: BB10%
Senior Unsecured: CCC+
5.0x
Outlook: Stable
5%
5.1x
4.6x
4.0x
0%
2011
2012
2013
2011
Adj. Debt/EBITDA
08/12/2014
4.2%
Source: Company data, Moody’s, S&P, Berenberg Fixed Income Research; *M = Moody’s, F = Fitch
2012
2013
RCF/Net Debt
13
Alain Afflelou
Summary of company figures
Selected profit & loss and cash flow financials (€ m)
Selected balance sheet financials (€ m) and financial ratios
2011
2012
2013*
2014
2011
2012
2013*
2014
Sales
192.3
286.0
329.8
323.9
Balance Sheet Total
1,015.5
1,017.6
1,134.3
1155.0
Gross Profit
93.8
129.8
155.2
165.0
Total Equity
69.8
166.2
165.0
125.4
Net Profit
10.5
-6.9
-24.9
-39.9
88.9
23.0
11.5
22.5
Adj. EBITDA
67.7
87.0
82.3
92.1
Adj. (Gross) Debt
581.1
567.7
686.7
766.2
Adj. EBIT
64.5
72.0
65.1
72.2
Adj. Net Debt
492.2
544.6
675.1
743.7
Adj. Funds from Operations
50.1
66.8
36.0
54.1
Adj. EBITDA Margin
35.2%
30.4%
24.9%
28.4%
Adj. Cash from Operations
58.2
67.4
30.6
36.8
Adj. (Gross) Debt/EBITDA
8.6x
6.5x
8.3x
8.3x
Adj. Free Cash Flow
57.0
56.2
17.5
20.4
7.3x
6.3x
8.2x
8.1x
Adj. Interest Expenses
51.3
62.7
69.3
95.2
Adj. FFO Interest Coverage
1.0x
1.1x
0.5x
0.6x
Revenue & Profitability*
Adj. Net Debt/EBITDA*
400
Adj. FFO Interest Coverage*
40%
800
12.0x
30%
600
10.0x
100
1.5x
35.2%
30.4%
24.9%
23.2%
24.8%
200
20.5%
0
0%
2013
2014
Revenue
EBITDA
Adjusted EBITDA addition
EBITDA margin (rhs)
Adjusted EBITDA margin (rhs)
08/12/2014
20%
10%
2012
1.2x
1.1x
1.0x
8.1x
400
8.0x
8.2x
7.3x
60
0.9x
0.5x
40
100
2011
80
28.4%
€m
32.9%
€m
€m
300
200
6.0x
6.3x
0
4.0x
2011
2012
2013
2014
0.6x
20
0.3x
0
0.0x
2011
Adj. Net Debt
Adj. EBITDA
Adj. Net Debt/EBITDA (rhs)
Source: Company data, Berenberg Fixed Income Research; *2013 figures refer to 14 months period (01/06/2012–31/07/2013)
0.6x
2012
2013
2014
Adj. FFO
Adj. FFO Interest Coverage (rhs)
14
2. Company profiles
2.2 Darty
Darty
Darty
Recommendation:
DRTYLN 5 ⅞ 03/21 (Bloomberg: DRTYLN <Corp>)
Overweight
Company data
Investment thesis
Headquarter:
London (UK)
We regard Darty’s 03/21 bond as an overweight in our specialty retail coverage. France largest electrical retailer convinces
by its strong market position and business model, particularly with regard to its distinctive customer service and
comprehensive multi-channel distribution system. Despite a strong dependence on the French market, we see further
tightening potential for the 03/21 bond, in particular when considering Darty’s new commitment to improve its credit metrics.
Strengths
Weaknesses
•
•
Market leader in France and second-largest player in
Belgium
Very strong brand recognition in France
Distinctive customer service offerings
Integrated multi-channel distribution network consisting
of stores, websites, mobile apps and call centres
•
•
•
•
•
Products:
Home appliances, vision and
audio products, multimedia and
communication products
Major shareholders:
Knight Vinke (25%), Schroders
(15%), UBS Global AM (10%),
Standard Life Investments (6%)
Weak geographical diversification after several
divestments with >75% of sales in France
The discontinued operations outside France have led to
large accumulated losses and negative equity
Leverage has increased significantly since FY2010
Bond data
106.2 / 395 / 4.2
Company Snapshot
Darty is the largest electrical retailer in France, with additional presence in Belgium and the Netherlands, where it operates
under the brands Vanden Borre and BCC, respectively. The company’s product range comprises small and major home
appliances (white goods), vision and audio products such as TVs or MP3 players (brown goods), as well as communications
and multimedia products such as smartphones or laptops (grey goods). Darty sells and markets its products via an
integrated multi-channel platform, which consists of 356 stores, websites, mobile apps and call centres (as of 31 July 2014).
Callable:
Yes
Z-spread (in bp)
1,000
250m
Bond ratings:
BB- (S&P)
Selected Financials
THOEUR
07/19
800
AAFFP
04/19
600
DRTYLN
03/21
400
200
0
0
08/12/2014
1
2
3
4
5
Time to worst
6
7
8
€m
2011
2012
2013
2014
Sales
4,108.5
3,896.7
3,558.9
3,579.4
Adj. EBITDA
300.2
298.0
233.9
228.2
Net income
30.7
-313.9
0.3
9.5
Adj. FFO
254.4
321.9
192.9
151.4
Adj. FCF
159.0
264.9
103.6
23.1
1.9x
3.5x
4.0x
4.3x
Source: Company data, Bloomberg (05/12/2014), Berenberg Fixed Income Research
Covenants:
i.a. CoC, LMT on Indebtedness,
LMT on Restricted Payments,
LMT on Asset Sales, LMT on
Liens, Merger and Consolidation
Payment rank:
Senior unsecured
16
Darty
The French electrical retail market
Electrical consumer products can generally be classified into the following three categories: (i) white goods, which comprise
major (MDA) and small domestic appliances (SDA), (ii) brown goods, which consist of vision and audio products, e.g. TVs
or MP3 players, and (iii) grey goods (communication/multimedia) such as smartphones, tablets or digital cameras.
In France, the traditional brick-and-mortar stores still represent by far the largest amount of sales (c.82%). However, webgenerated sales including web-and-collect services have become increasingly important in recent years. Moreover, internet
retailing has changed the industry to the extent that prices have become very transparent and easily comparable.
Opportunities
According to GfK data, the French market has contracted from €19.1bn in 2009/10 to €17.8bn in 2012/13, mainly due to a
significant decrease in brown good sales, which could only partly be offset by an increase in grey good sales.
Industry forces
Market share by retailer category in France (as of April 2013)
Innovation
Consumer spending
•
•
•
•
Electrical goods mostly represent
discretionary purchases
Sales volumes heavily depend on
the macro environment
•
Innovation drives sales growth
New software can require
development of new hardware
Hard- and software Innovation often
triggers product replacement
Electrical
retailing
•
Renewal of large white goods
mainly driven by product lifetime
Shorter replacement cycle for
brown and grey goods, but more
discretionary purchases
1%
9%
2%
9%
•
•
3%
10%
Fast innovation cycles pressure
prices
Decreasing price levels drive
sales volumes and shorten
replacement cycles
7%
10%
11%
6.0
82%
Store
20%
08/09
08/12/2014
Kitchen specialists
Pure players
Supermarkets
Telecom specialists
Threats
•
Electrical retailing is generally
more cyclical, especially for
grey and brown goods
30,000
•
20,000
Risk of a prolonged economic
downturn in France
5.0
•
Highly competitive market with
a lot of different retail formats
4.0
0%
•
Price deflation could cause
pressures on profit margins
09/10
10,000
10/11
3.0
-10%
2.0
0
11/12
'02 '04 '06 '08 '10 '12 '14 '16
12/13
Demand (world container trade, Y/Y)
0.0
Supply
fleetgoods
development,
MDA (containership
SDA
Grey
Brown Y/Y)
Aver. containership earnings* (rhs, USD/day)
goods
1.0
0%
09/10
10/11
11/12
12/13
Source: Company data, GfK, Berenberg Fixed Income Research
Technical innovations drive
sales volumes and shorten
replacement cycles
10%
Pure online
85%
•
French market volumes by product category
€ bn
40%
87%
Web-generated sales offer
high growth potential
Others
Click-&-collect
89%
40.6%
12.9%
20%
7.0
60%
•
Hypermarkets
12.7%
4.4%
21.9%
5%
80%
90%
Large specialists
Fundamentally stable market,
especially for white goods
Traditionals
French market breakdown by sales channel
100%
3.4%
Price deflation
Product renewal
•
3.3%
0.6%
•
17
Darty
Strategic direction
Darty’s revenue split by product (1H2014)
Darty offers a broad range of electrical goods with the majority of sales
coming from the generally less discretionary white goods (44% of sales as of
31 October 2013), followed by grey (27%) and brown goods (16%) as well
as related accessories (13%). These are sold via an integrated multi-channel
platform with an increasing importance of web-generated sales, as indicated
most recently through the Mistergooddeal.com acquisition.
13%
Berenberg
competitive scoring
44%
16%
Since FY2011/12, Darty has disposed its international subsidiaries in the UK
(Comet), Italy, Spain, Turkey (Darty) and the Czech Republic (Datart) to
refocus on its core business in France, Belgium and the Netherlands.
27%
Darty currently focusses to grow in core markets, expand its kitchen offerings
and franchise activities, and enhance its price-competitiveness. Moreover,
the company plans to continuously differentiate the brand by further
improving product and customer service offerings and emphasise strong
cash flow generation to reduce financial leverage.
White goods
Grey goods
Brown goods
Accessories
Regulatory risks
Scale & geographic
diversification
In December 2012, Darty has launched the “Nouvelle Confiance” strategic plan. A key part of this plan are the “4Ds”:
(i) Drive trading (improve product/service offerings and marketing), (ii) Digitalise Darty (enhance websites, drive webgenerated sales), (iii) Develop the brand (expand customer base), and (iv) Deliver cost efficiency (cost saving initiatives).
Where has Darty gained market share?
Financial policy
Market
8%
14%
market share in %
Has Darty outperformed the market with regard to sales?
Darty
16%
6%
12%
4%
10%
2%
8%
0%
Brand awareness
-2%
6%
Profitability
-4%
4%
-6%
2%
-8%
0%
-10%
2011/12
France
08/12/2014
2012/13
Belgium
France
Belgium
Revenue & cash flow volatility
Netherlands
2013/14
Netherlands
Source: Company data, Berenberg Fixed Income Research
18
Darty
Capital structure
Maturity profile
260
250
€m
250
240
€m
2014
75.5
Senior Unsecured Notes (5.875% - 7y)
250.0
RCF - drawn (5y)
230
225
210
RCF
(DRTYLN 5⅞ 03/21)
Issuer:
Darty Financements S.A.S
Guarantor(s):
Darty Plc, Kesa Holdings &
Kesa International
03/2021
Major Covenants**
(10.8)
Net debt
185.2
1.4x
987.6
4.3x*
205
5 years
RCF - undrawn (5y)
Senior Notes
Senior Unsecured Notes
Maturity
20
Transaction costs (prepaid fees)
220
xEBITDA
CoC:
≥50% of voting shares; sale of
all/substantially all assets;
liquidation/dissolution; Board of
Directors largely replaced
02/2019
LMT on Indebtedness:
Limited additional debt unless
FCCR≥2.25x after incurrence
Corporate structure
Darty Plc
(UK)
Issuer of the Notes
Non-Guarantors
Kesa Holdings Limited
(UK)
Operating subsidiaries
Kesa Holdings
Luxembourg Sarl
LMT on Asset Sales:
(Luxembourg)
Darty Holdings SNC
Senior Notes
(France)
Kesa International
Limited
Darty Financements
S.A.S
(UK)
(France)
LMT on Liens:
guarantees equally secured
99.705%
Kesa France S.A.
RCF
(France)
Restricted unless surviving
company could incur min. €1 of
debt under Indebt. covenant
08/12/2014
Source: Company data, Berenberg FI Research; *Lease adjusted EBITDA; **Certain exemptions may apply to the covenants
19
Darty
The rating agencies’ opinion
•
Market leader in France (S&P)
•
•
Strong brand recognition and reputation among
French customers (S&P)
Large exposure to the fragmented and highly
competitive French market (S&P)
•
•
Small reported net debt and ownership of c.30%
of its real estate in France (S&P)
High cyclicality of electrical retailing vs. other
retail industries (S&P)
•
Limited debt and weak CF generation (S&P)
•
Moderate EBITDA growth should strengthen
Darty’s credit ratios (S&P)
•
Relatively weak competitive position compared to
other peers such as U.S.-based Best Buy (S&P)
Ratings
Moody’s:
Corporate Family: NR1
Senior Secured: NR1
Outlook: n.a.
Rating pressure could arise from…
Last update: n.a.
•
a strengthening of the competitive position (S&P)
•
a stabilization of profitability at higher levels (S&P)
•
the achievement of a FFO/Debt of more than 35%
and Debt/EBITDA close to 2.0x on a sustainable
basis (S&P)
•
an FFO/Debt that falls below 30% and a
Debt/EBITDA closer to 3.0x (S&P)
•
a material weakening of adjusted free operating
cash flows (S&P)
•
S&P:
Corporate Family: BB-
Senior Unsecured: BB-
Ratios could be hit if French market deteriorates or
if turnaround strategy does not work out (S&P)
Outlook: Stable
Thresholds for rating pressure…
Fitch:
Adjusted FFO/Debt (S&P)*
Adjusted Debt/EBITDA (S&P)*
100%
4.0x
3.0x
104.9%
80%
Senior Secured: NR1
Outlook: n.a.
74.8%
2.5x
2.0x
Last update: n.a.
60%
47.9%
1.7x
1.0x
40%
1.3x
0.7x
20%
0.0x
2011
2012
2013
2014
2011
2012
2013
30.5%
1
2014
Adjusted FFO/Debt
Adjusted Debt/EBITDA
08/12/2014
Source: Company data, S&P, Berenberg; *2011-2013: Berenberg estimates applying S&P methodology; 2014: S&P stated full year estimate
20
NR = Not rated
Darty
2011
2012
2013
2014
2011
2012
2013
2014
Sales
4,108.5
3,896.7
3,558.9
3,579.4
Balance Sheet Total
2,050.3
1449.4
1230.9
1210.4
Gross Profit
1,397.4
1,308.7
1,190.3
1,174.7
Total Equity
216.1
-117.0
-260.1
-316.2
Net Profit
30.7
-313.9
0.3
9.5
177.6
99.4
68.0
75.5
Adj. EBITDA
300.2
298.0
233.9
228.2
Adj. (Gross) Debt
760.8
1,140.7
995.4
1,063.1
Adj. EBIT
205.1
204.4
163.1
173.7
Adj. Net Debt
583.2
1,041.3
927.4
987.6
Adj. Funds From Operations
254.4
321.9
192.9
151.4
Adj. EBITDA Margin
7.3%
7.6%
6.6%
6.4%
Adj. Cash From Operations
292.9
380.8
172.8
85.0
2.5x
3.8x
4.3x
4.7x
Adj. Free Cash Flow*
159.0
264.9
103.6
23.1
1.9x
3.5x
4.0x
4.3x
39.0
49.3
46.5
48.0
6.5x
6.5x
4.2x
3.2x
Revenue & Profitability
4,500
7.6%
4.7%
3.8%
3.6%
1,500
4.3x
4.0x
800
600
1.9x
3%
400
2.0x
200
0
0%
2012
2013
2014
Revenue
EBITDA
EBITDA margin (rhs)
08/12/2014
6.5x
7.0x
6.5x
0
2012
2013
5.0x
4.2x
200
4.0x
3.2x
150
3.0x
100
2.0x
50
1.0x
0.0x
2011
6.0x
250
4.0x
3.5x
€m
6%
5.2%
2011
350
300
6.4%
€m
€m
6.0x
1,000
6.6%
3,000
1,200
9%
7.3%
0
0.0x
2011
2014
2012
2013
2014
Adj. Net Debt
Adj. FFO
Adj. EBITDA
Source: Company data, Berenberg FI Research; *For comparison: Adj. FCF incl. Discont. Oper. (128.8/-18.2/5.9/3.1) 2011–2014 respectively
21
2. Company profiles
2.3 THOM Europe
THOM Europe
THOM Europe
Recommendation:
THOEUR 7 ⅜ 07/19 (Bloomberg Tickers: THOEUR <Corp>)
Overweight
Company data
Investment thesis
Headquarter:
Paris (France)
We see THOM Europe’s strong brand positioning with three well-known brands and a business model that focusses on
different pricing strategies and a multi-channel approach as credit positive. In addition, we like the company’s ability to
consistently generate positive FCFs. On the other hand, THOM’s high leverage and strong exposure to France weighs
negative. Given that THOM trades c.70bp above the single-B consumer curve and c.100bp above AAFFP 04/19, we see
significant spread tightening potential and therefore initiate an overweight recommendation.
Strengths
Weaknesses
•
•
Leading competitive position based on a strong store
network (increases bargaining power)
Multi-concept approach (3 well-known brands) with a
broad and diversified product offering
Short-term resilience to changing economic conditions
due to a flexible supply chain and logistics
•
•
•
•
Products:
Jewellery, watches & costume
jewellery
Major shareholders:
Bridgepoint (59.1%), APAX
Partners (25.3%), Management
(9.2%), Qualium (6.5%)
Limited geographical diversification with a strong focus
on France
Highly seasonal business (40% of annual sales
generated during three months)
Highly levered, particularly when adjusting for operating
lease commitments (almost all stores are leased)
Bond data
96.3 / 797 / 8.4
Callable:
Yes
Company Snapshot
THOM Europe S.A.S. is the leading jewellery and watches retailer in France, offering a multi-concept and channel
proposition. The company was formed as a result of the merger between the well-known French brands Histoire d’Or and
Marc Orian, after being jointly acquired by two Private Equity Funds – Bridgepoint and Apax Partners – in 2010. The
company’s brand line-up is completed by TrésOr. As of 2014, THOM Europe directly operated 539 stores, mainly located in
France, with shopping malls as the primary location of stores.
Z-spread (in bp)
1,000
Bond ratings:
B2 (Moody's)/ B (S&P)
Selected Financials
THOEUR
07/19
800
AAFFP
04/19
600
DRTYLN
03/21
400
200
0
0
08/12/2014
346.8m
1
2
3
4
5
Time to worst
6
7
8
€m
2011
2012
2013
3Q2014
Sales
375.9
380.9
369.6
291.2
Adj. EBITDA
113.8
119.9
117.1
96.5
Net Income
-8.1
-1.8
-11.2
-3.0
Adj. FFO
63.6
71.6
67.3
61.8
Adj. FCF
51.4
49.4
72.5
66.3
7.1x
7.3x
7.7x
7.0x*
Source: Company data, Bloomberg (05/12/2014), Berenberg FI Research; *Ratio computed on basis of annualized figures
Covenants:
i.a. CoC, LMT on Indebtedness,
LMT on Restricted Payments,
LMT on Asset Sales, LMT on
Liens, Merger and Consolidation
Payment rank:
Senior secured
23
THOM Europe
The French jewellery and watches market
In 2013, the global jewellery and watches market had an approximate size of € 150bn in terms of annual sales, of which
around € 4bn were attributable to the French market. Even more than the general industry picture for retailing, the French
jewellery market is characterised by cyclicality and seasonality. Consumer confidence and hence spending can vary widely
from year to year and fluctuations in precious metal prices can place additional pressure on retailers.
With regard to product preferences, the market has slightly changed since the financial crisis in 2008. Increased price
sensitivity of customers and rising prices for raw materials steadily decreased the demand for the precious jewellery.
Opportunities
In terms of sales channels, stores in the city centre represent the most important one in France, followed by shopping
centres. However, other channels such as online stores are gaining more and more in importance.
Top European jewellery retailers
Industry forces
Consumer spending
•
•
•
•
•
•
•
•
Consumer bahviour
Degree fo globalisation
Increasing internet usage
Digital engagement (social media)
Gross domestic product
Disposable income
Consumer confidence
Luxury consumption
€m
Online retailing
Jewellery
retailing
Industry consolidation
Precious metal prices
•
•
•
•
•
•
Demand and supply
Geopolitical factors
Speculation (futures market)
State of economy
(gold as "safe haven" asset)
600
500
400
300
200
100
0
543
493
450
399
186
373
345
359
345
247
223
180
214
5%
6%
6%
9%
9%
9%
10%
10%
23%
24%
25%
26%
27%
08/12/2014
61%
57%
58%
2011
Watches
Internationalization of brands
(shift from local to global)
37
Threats
Number of stores
20%
10%
49.2%
49.4%
21.4%
21.2%
0%
2010
•
205
2012
Costume
•
Prevailing weak economic
environment negatively
affecting consumer spending
30,000
•
Radical shift from “brick-andmortar” to online retailing
20,000
•
Large increase in prices of
gold and other precious metals
5%
Precious
Trend towards online retailing
(home delivery/click-andcollect)
French market breakdown by sales channel*
4%
2009
•
539
Sales
62%
Further consolidation of the
fragmented market
Internationalisation of brands
Increased M&A and
private-equity activity
Product segmentation
64%
•
2013
Others
-10%
10,000
10.0%
7.0%
0
'02 '04 '06 '08 '10 '12 '14
18.5% '16
Demand
Y/Y)
2011 (world container trade, 2013
Supply (containership
fleet development,
Y/Y)
Other channels
Costume jewellery
store
Hypermarkets
Shopping
centers
City centers
Aver.
containership
earnings* (rhs, USD/day)
11.0%
6.0%
17.6%
Source: Company data, Roland Berger, Berenberg FI Research; *Other channels incl. internet, mail order, dept. stores & fashion retailers
24
THOM Europe
In order to increase its customer reach THOM relies on a multi-concept and
channel approach. Offering three different brands, each with a differentiated
strategy, allows the company to appeal to a broader range of customers.
Moreover, the recently introduced e-store for their Histoire d’Or brand
represents a good complement to the company’s extensive store network
and further extends its customer reach.
Berenberg
competitive scoring
Entry-to-medium
range
THOM Europe is the leading jewellery and watches retail chain in France
(in terms of sales and stores), with a focus on offering affordable precious
jewellery to a low-to-mid budget customer segment. In the past, this strategic
alignment has proved to be rather resilient to adverse market conditions.
Medium-to-high
range
Strategic direction
Regulatory risks
With regard to its store portfolio, THOM focusses on a strong presence in
City centres
Shopping centres
high-quality shopping malls with high customer flow rates all over France. In
the future, it is planned to extend the company’s presence in large city
centres and to smaller and medium sized shopping centres due to new store openings and acquisitions (exemplified by the
recent acquisition of a selection of 31 Piery stores). Moreover, the company aims at further extending its presence in
international markets (currently 49 stores outside of France), following a conservative expansion strategy.
Scale & geographic
diversification
Too dependent on the French market?
Leading market position in France
Financial policy
16 stores
(c.3% of all stores)
Histoire d'Or
600
7.3%
75.0%
TrésOr
16.2%
500
Marc Orian
Belgium
400
France
2 stores
(c.0.4% of all stores)
300
Italy
Brand awareness
31 stores
(c.7% of all stores)
Profitability
200
100
Portugal
0
THOM
Europe
Synalla Galaries E.Leclerc
Lafayette
Sales (in €m)
08/12/2014
Maty
•
•
•
Cash flow volatility
490 stores (c.91% of all stores)
Approx. 97% located in shopping centers
e-store for Histoire d‘Or
Number of stores (in #)
Source: Company data, Roland Berger, Berenberg Fixed Income Research; *Only considering stores and sales for jewellery and watches
25
THOM Europe
Capital structure1
€m
Maturity profile
800
€m
60
600
346
200
48.9
Existing Debt Facilities
202.7
Convertible bonds (10y/9y)
351.0
Other financial liabilities
143
28
29
351
3
2014 2015 2016 2017 2018 >2019
Existing Debt Facilitiess
Senior Secured Notes 07/19
1
Bank overdrafts
400
0
3Q2014
Convertible bonds
Super Senior RCF
xEBITDA
Maturity
(THOEUR 7⅜ 07/19)
Issuer:
THOM Europe S.A.S
Guarantor(s):
Histoire d’Or S.A.S
10/2020
3.9
Major Covenants**
0.5
CoC:
≥50% of voting shares or sale of
all/substantially all assets
LMT on Indebtedness:
Limited additional debt/issue of
preference shares unless FCCR
≥2.0x for past FY + total nonguarantor indebtedness <€20m
LMT on Assets Sales:
LMT on Liens:
guarantees equally secured
LMT on Affiliated TRNs:
No transactions with affiliates of
issuer above €5m
Restriction for issuer/notes
guarantor to merge/consolidate
Net debt
509.2
6.3x*
894.3
7.0x**
Senior Secured Notes (7.375% - 5y)
346.8
07/2019
Super Senior RCF (4.5y)
60.0
01/2019
Represents capital structure before the issuance of the 07/19 Senior Secured Notes on July 18, 2014, used to fully early repay existing debt facilities and
partly early repay convertible bonds, and the granting of a new revolving credit facility.
Corporate structure2
Bridgepoint
APAX Partners
65%
28%
European Jewellers 1
(Luxembourg)
100%
Qualium
7%
Issuer of the Notes
European Jewellers 2
(Luxembourg)
Luxembourg
France
91%
9%
Top Management
ManCo
Senior Secured
Notes
Super Senior RCF
(Undrawn Credit Facility)
€ 346.8m
€ 60.0m
THOM Europe S.A.S
(France)
100%
Histoire d‘Or S.A.S
(France)
(Restricted Group)
2
Corporate structure after the issuance of the 07/19 Senior Secured Notes and the granting of a new Super Senior RCF on July 18, 2014.
08/12/2014
Source: Company data, Berenberg; *Annual. EBITDA; **Lease adjusted, annual. EBITDA; **Certain exemptions may apply to the covenants
26
THOM Europe
The rating agencies’ opinion
•
Leading position in fragmented market
(Moody’s, S&P)
•
Very seasonal and cyclical business (Moody’s)
•
Modest size, scale and narrow geographic
diversification (S&P)
•
Successful operational execution and cash flow
generation (Moody’s, S&P)
•
High leverage (Moody’s, S&P)
•
Efficient supply chain management and supplyside bargaining power (Moody’s, S&P)
•
Limited prospects for deleveraging in near future
(Moody’s)
•
Compelling retail proposition and adequate
liquidity profile (Moody’s, S&P)
•
Narrow footprint in city centres, only nascent ecommerce platform and supplier concentration (S&P)
Ratings
Moody’s:
Corporate Family: B2
Senior Secured: B2
Outlook: Stable
Rating pressure could arise from…
•
continued growth and high operating margins
(Moody’s)
•
weakened credit metrics due to more aggressive
financial policy (S&P)
•
a substantial increase in FCF generation (Moody’s)
•
negative FCF generation for a longer time (Moody’s)
•
EBITDAR coverage >2.2x and interest coverage
>3.0x on a substantial basis (S&P)
•
•
adjusted (Gross) Debt/EBITDA substantially
towards 5.0x (Moody’s)
FOCF weakened significantly or turn negative and
interest coverage close to or below 2.0x (S&P)
Adjusted (Gross) Debt/EBITDA remaining close to
6.5x (Moody’s)
•
S&P:
Corporate Family: B
Senior Secured: B
Outlook: Stable
Threshold for rating pressure…
Adjusted (Gross) Debt/EBITDA (Moody’s)
Fitch:
Adj. Interest Coverage (S&P)
10.0x
9.0x
9.5x
8.5x
2014*
Upward
threshold
Downward
threshold
Adj. EBITDA/interest
>3.0x
>3.0x
<2.0x
Adj. EBITDAR/interest
<2.2x
>>2.2x
8.8x
Senior Secured: NR1
Outlook: n.a.
8.0x
Last update: n.a.
7.0x
6.0x
5.0x
1
4.0x
2011
2012
2013
(Gross) Debt/EBITDA
08/12/2014
Source: Company data, Moody’s, S&P, Berenberg Fixed Income Research; *S&P estimated figures
27
NR = Not rated
THOM Europe
2011
2012
2013
3Q2014
2011
2012
2013
3Q2014
Sales
375.9
380.9
369.6
291.2
Balance Sheet Total
757.8
754.0
727.3
735.0
Gross Profit
229.5
240.5
240.3
200.7
Total Equity
127.6
106.2
73.9
55.7
-8.1
-1.8
-11.2
-3.0
12.3
30.1
29.4
48.9
Adj. EBITDA
113.8
119.9
117.1
96.5
Adj. (Gross) Debt
817.8
907.8
928.1
846.9
Adj. EBIT
70.5
65.3
61.3
53.6
Adj. Net Debt
805.5
877.7
898.7
798.0
Adj. Funds From Operations
63.6
71.6
67.3
61.8
Adj. EBITDA Margin
30.3%
31.5%
31.7%
33.1%
Adj. Cash From Operations
70.8
65.0
80.7
75.5
7.2x
7.6x
7.9x
7.3x*
Adj. Free Cash Flow
51.4
49.4
72.5
66.3
7.1x
7.3x
7.7x
7.0x*
74.3
63.3
67.3
52.5
0.9x
1.1x
1.0x
1.2x*
Net Profit
Revenue & Profitability
400
40%
1,000
10.0x
100
8.0x
80
1.6x
35.1%
31.5%
800
30%
23.7%
20.2%
19.7%
18.9%
200
20%
100
10%
0
0%
2011
2012
2013
3Q2014
Revenue
EBITDA
EBITDA margin (rhs)
08/12/2014
7.1x
7.7x
7.3x
7.0x
1.2x
1.1x
1.0x
€m
€m
300
€m
30.3%
31.7%
600
6.0x
400
4.0x
40
200
2.0x
20
0.0x
0
60
1.2x
0.9x
0.8x
0
2011
2012
2013
3Q2014*
0.4x
0.0x
2011
2013
3Q2014*
Adj. FFO
Adj. Net Debt
Adj. EBITDA
Source: Company data, Berenberg FI Research; *Ratios computed on basis of annualized figures
2012
28
3. Appendix: Macro-environment
Macro driver #1: Economic growth (I)
Close link between development of retail sales and GDP
8.0%
7.0%
Retail sales growth is
strongly correlated with
overall economic growth.
6.0%
5.0%
Growth rate (yoy)
4.0%
Retail sales growth in France
has been constantly higher
than in the Eurozone,
indicating a strong resilience
of the French retail market.
3.0%
2.0%
1.0%
0.0%
Although France lags behind
the Eurozone in terms of
economic recovery, retail
sales growth on average has
been considerably above
3% since year-end 2013.
-1.0%
-2.0%
-3.0%
-4.0%
Even during the recent growth
slowdown in France, retail
sales growth has been strong
compared to the Eurozone
average.
-5.0%
-6.0%
French GDP
Eurozone GDP
08/12/2014
French non-food retail sales (3M average)
Eurozone non-food retail sales (3M average)
Source: Bloomberg (05/12/2014), Eurostat, Berenberg Fixed Income Research
30
Macro driver #1: Economic growth (II)
Rough patch in the euro area, but growth is expected to accelerate
Country
Non-Food Retail Sales (yoy %)
GDP (yoy %)
Jul 2014
Aug 2014
Sep 2014
as of Q2 2014
2014e*
2015e*
2016e*
1
Ireland
5.2%
4.9%
6.4%
7.7%
4.6%
3.6%
3.7%
2
Latvia
4.1%
3.9%
0.6%
3.3%
2.6%
2.9%
3.6%
3
Luxembourg
7.6%
14.6%
14.9%
3.2%
3.0%
2.4%
2.9%
4
Estonia
9.2%
8.1%
9.3%
2.9%
1.9%
2.0%
2.7%
5
Slovenia
4.0%
2.0%
0.2%
2.8%
2.4%
1.7%
2.5%
6
Malta
N.A.
N.A.
N.A.
2.5%
3.0%
2.9%
2.7%
7
Slovakia
3.2%
1.4%
3.2%
2.4%
2.4%
2.5%
3.3%
8
Germany
1.9%
3.9%
-1.5%
1.4%
1.3%
1.1%
1.8%
9
Spain
0.3%
1.8%
0.5%
1.2%
1.2%
1.7%
2.2%
10
Netherlands
0.0%
5.6%
-3.9%
1.1%
0.9%
1.4%
1.7%
11
Belgium
0.4%
6.1%
0.0%
1.0%
0.9%
0.9%
1.1%
12
Portugal
4.8%
4.4%
4.9%
0.9%
0.9%
1.3%
1.7%
Ø
Eurozone
2.3%
4.0%
0.6%
0.8%
0.8%
1.1%
1.7%
13
Austria
-0.5%
2.7%
1.4%
0.5%
0.7%
1.2%
1.5%
14
France
3.5%
4.9%
2.9%
0.0%
0.3%
0.7%
1.5%
15
Finland
-2.5%
-0.6%
-4.3%
-0.1%
-0.4%
0.6%
1.1%
16
Greece
2.5%
0.1%
0.0%
-0.2%
0.6%
2.9%
3.7%
17
Italy
2.7%
1.8%
0.0%
-0.3%
-0.4%
0.6%
1.1%
18
Cyprus
6.9%
8.4%
9.1%
-2.5%
-2.8%
0.4%
1.6%
The upswing within the euro
area has been interrupted,
mainly due to geopolitical
crises (especially in Russia
and Ukraine) which have
weakened business
confidence and investment.
Overall economic growth is
expected to increase
moderately over the next two
years with French growth
slowly converging to the
European average.
However, France still lags
behind and suffers from a
lack of structural reforms,
especially with regard to the
crucial labour market.
Click here for Berenberg’s
latest economic forecasts
08/12/2014
Source: Bloomberg (05/12/2014), Eurostat, EU Commission, Berenberg Fixed Income Research; *EU Autumn Forecast (yoy %)
31
Macro driver #2: Unemployment (I)
Close link between development of retail sales and employment
10.0%
7.0%
9.0%
8.0%
7.5%
French unemployment
reached its bottom in
February/March 2008 with
7.2%. Since then, it has
increased dramatically. With
fewer people having a
disposable income, consumer
demand and hence retail
sales were negatively
impacted.
7.0%
6.0%
8.0%
4.0%
8.5%
3.0%
2.0%
9.0%
1.0%
0.0%
9.5%
Unemployment rate
Growth rate (yoy)
5.0%
-1.0%
-2.0%
10.0%
Since July 2014, French
unemployment has been at a
historical peak of 10.5%,
mainly due to the weak GDP
development and the lack of
structural reforms.
-3.0%
-4.0%
10.5%
-5.0%
-6.0%
11.0%
French non-food retail sales
08/12/2014
French unemployment (rhs, inverted)
Source: Bloomberg (05/12/2014), Eurostat, Berenberg Fixed Income Research
32
Macro driver #2: Unemployment (II)
Eurozone unemployment rates expected to decrease and converge
Country
Rank by GDP
Unemployment Rate
as of September 2014*
2014e**
2015e**
2016e**
as of Q2 2014
1
Germany
5.0%
5.1%
5.1%
4.8%
# 1
2
Austria
5.1%
5.3%
5.4%
5.0%
# 6
3
Malta
5.8%
6.1%
6.1%
6.2%
# 18
4
Luxembourg
6.1%
6.1%
6.2%
6.1%
# 12
5
Netherlands
6.5%
6.9%
6.8%
6.7%
# 5
6
Estonia
7.7%
7.8%
7.1%
6.3%
# 16
7
Belgium
8.5%
8.5%
8.4%
8.2%
# 7
8
Finland
8.7%
8.6%
8.5%
8.3%
# 8
9
Slovenia
8.9%
9.8%
9.2%
8.4%
# 14
10
France
10.5%
10.4%
10.4%
10.2%
# 2
11
Latvia
10.8%
11.0%
10.2%
9.2%
# 15
12
Ireland
11.2%
11.1%
9.6%
8.5%
# 9
Ø
Euro Area
11.5%
11.6%
11.3%
10.8%
-
13
Italy
12.6%
12.6%
12.6%
12.4%
# 3
14
Slovakia
13.0%
13.4%
12.8%
12.1%
# 13
15
Portugal
13.6%
14.5%
13.6%
12.8%
# 10
16
Cyprus
15.1%
16.2%
15.8%
14.8%
# 17
17
Spain
24.0%
24.8%
23.5%
22.2%
# 4
18
Greece
25.9%
26.8%
25.0%
22.0%
# 11
France has experienced
continuously rising
unemployment (except for a
few short periods) since the
beginning of 2008.
However, French
unemployment is still below
the Eurozone average and
has likely reached its peak
with the rate of unemployment
finally appearing to be
slowing on the back of the
“responsibility pact”, i.a.
aiming at cutting payroll taxes
to boost job creation.
Despite the high
unemployment in France,
retail sales have been
growing steadily over the
past years.
Click here for Berenberg’s
latest economic forecasts
08/12/2014
Source: Bloomberg (05/12/2014), Eurostat, EU Commission, Berenberg; *Excp.: Lativa (06/2014) & Estonia (08/2014); **EU Autumn Forecast
33
Macro driver #3: Consumer confidence
Consumer confidence as an indicator for future retail sales
5.0%
0
4.0%
-4
3.0%
-8
2.0%
-12
1.0%
-16
0.0%
-20
-1.0%
-24
-2.0%
-28
-3.0%
-32
-4.0%
-36
-5.0%
-40
-6.0%
-44
Eurozone non-food retail sales
France consumer confidence (rhs)
08/12/2014
Consumer confidence has
consistently improved since
the beginning of 2013 and has
already reached pre-crisis
levels, indicating a
continuing upward trend for
Eurozone retail sales.
Consumer confidence index level
4
Growth rate (yoy)
6.0%
French consumer confidence
has been largely in line with
the Eurozone average for the
past 10 years. However, more
recently consumers in France
are considerably less
confident than the average
European consumer.
Eurozone consumer confidence (rhs)
Source: Bloomberg (05/12/2014), Eurostat, EU Commission, Berenberg Fixed Income Research
34
4. Disclaimer
Disclaimer
Please note that the use of this research report is subject to the conditions and
restrictions set forth in the “General investment-related disclosures” and the “Legal
disclaimer” at the end of this document.
For analyst certification and remarks regarding foreign investors and country-specific
disclosures, please refer to the respective paragraph at the end of this document.
Disclosures in respect of section 34b of the German Securities Trading
Act (Wertpapierhandelsgesetz – WpHG)
Company
Alain Afflelou
Darty PLC
THOM Europe SAS
(1)
(2)
(3)
(4)
(5)
08/12/2014
Disclosures
no disclosures
no disclosures
no disclosures
Initiation of coverage
8 December 2014
8 December 2014
8 December 2014
Joh. Berenberg, Gossler & Co. KG (hereinafter referred to as “the Bank”) or its
affiliate(s) was Lead Manager or Co-Lead Manager over the previous 12 months of a
public offering of this company.
The Bank acts as Designated Sponsor for this company.
Over the previous 12 months, the Bank and/or its affiliate(s) has effected an agreement
with this company for investment banking services or received compensation or a
promise to pay from this company for investment banking services.
The Bank and/or its affiliate(s) holds 5 % or more of the share capital of this company.
The Bank holds a trading position in shares of this company.
36
Disclaimer
Historical recommendation changes for AAFFP 5 5/8 04/19 in the last 12 months
Date
08 December 2014
Recommendation
Marketweight
Historical recommendation changes for DRTYLN 5 7/8 03/21 in the last 12 months
Date
08 December 2014
Recommendation
Overweight
Historical recommendation changes for THOEUR 7 3/8 07/19 in the last 12 months
Date
08 December 2014
Recommendation
Overweight
Berenberg distribution of recommendations and in proportion to investment banking
services
Overweight
Underweight
Marketweight
28.07 %
26.32 %
45.61 %
36.36 %
9.09 %
54.55 %
Valuation basis / recommendation key
Overweight:
Sustainable spread tightening potential higher 10% within 3-6 months.
Underweight:
Sustainable spread widening potential lower 10% within 3-6 months.
Marketweight:
Limited spread movement potential. No immediate catalyst visible.
NB The Bank’s Fixed Income Research Department does not make recommendations on the
basis of absolute performance, but on performance expected relative to the market or peer
group as spreads move with markets and sectors as well as with the issuer itself.
08/12/2014
37
Disclaimer
Competent supervisory authority
Bundesanstalt für Finanzdienstleistungsaufsicht -BaFin- (Federal Financial Supervisory
Authority),
Graurheindorfer Straße 108, 53117 Bonn and Lurgiallee 12, 60439 Frankfurt am Main
General investment-related disclosures
Joh. Berenberg, Gossler & Co. KG (hereinafter referred to as „the Bank“) has made every
effort to carefully research all information contained in this financial analysis. The information
on which the financial analysis is based has been obtained from sources which we believe to
be reliable such as, for example, Thomson Reuters, Bloomberg and the relevant specialised
press as well as the company which is the subject of this financial analysis.
Only that part of the research note is made available to the issuer (who is the subject of this
analysis) which is necessary to properly reconcile with the facts. Should this result in
considerable changes a reference is made in the research note.
Opinions expressed in this financial analysis are our current opinions as of the issuing date
indicated on this document. We do not commit ourselves in advance to whether and in which
intervals an update is made. The companies analysed by the Bank are divided into two
groups: “full coverage“ - continued updates - and “screening coverage“ - updates as and
when required in irregular intervals.
The functional job title of the person/s responsible for the recommendations contained in this
report is “Fixed-Income Research Analyst” unless otherwise stated on the cover.
The following internet link provides further remarks on our financial analyses:
https://www.berenberg.de/en/fir_en.html
08/12/2014
38
Disclaimer
Legal disclaimer
This document has been prepared by Joh. Berenberg, Gossler & Co. KG (hereinafter
referred to as „the Bank“). This document does not claim completeness regarding all the
information on the stocks, stock markets or developments referred to in it.
On no account should the document be regarded as a substitute for the recipient procuring
information for himself/herself or exercising his/her own judgements.
The document has been produced for information purposes for institutional clients or market
professionals.
Private customers, into whose possession this document comes, should discuss possible
investment decisions with their customer service officer as differing views and opinions may
exist with regard to the stocks referred to in this document.
This document is not a solicitation or an offer to buy or sell the mentioned stock.
The document may include certain descriptions, statements, estimates, and conclusions
underlining potential market and company development. These reflect assumptions, which
may turn out to be incorrect. The Bank and/or its employees accept no liability whatsoever
for any direct or consequential loss or damages of any kind arising out of the use of this
document or any part of its content.
The Bank and/or its employees may hold, buy or sell positions in any securities mentioned in
this document, derivatives thereon or related financial products. The Bank and/or its
employees may underwrite issues for any securities mentioned in this document, derivatives
thereon or related financial products or seek to perform capital market or underwriting
services.
Analyst certification
I, Jannik Prochnow, hereby certify that all of the views expressed in this report accurately
reflect my personal views about any and all of the subject securities or issuers discussed
herein.
In addition, I hereby certify that no part of my compensation was, is, or will be, directly or
indirectly related to the specific recommendations or views expressed in this research report,
nor is it tied to any specific investment banking transaction performed by the Bank or its
affiliates.
08/12/2014
39
Disclaimer
Remarks regarding foreign investors
The preparation of this document is subject to regulation by German law. The distribution of
this document in other jurisdictions may be restricted by law, and persons into whose
possession this document comes should inform themselves about, and observe, any such
restrictions.
United Kingdom
This document is meant exclusively for institutional investors and market professionals but
not for private customers. It is not for distribution to or the use of private investors or private
customers.
United States of America
This document has been prepared exclusively by the Bank. Although Berenberg Capital
Markets LLC, an affiliate of the Bank and registered US broker-dealer, distributes this
document to certain customers, Berenberg Capital Markets LLC does not provide input into its
contents, nor does this document constitute research of Berenberg Capital Markets LLC. In
addition, this document is meant exclusively for institutional investors and market
professionals, but not for private customers. It is not for distribution to or the use of private
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This document is classified as objective for the purposes of FINRA rules. Please contact
Berenberg Capital Markets LLC (+1 617.292.8200), if you require additional information.
08/12/2014
40
Disclaimer
Third-party research disclosures
Company
Alain Afflelou
Darty PLC
THOM Europe SAS
(1)
(2)
(3)
(4)
(5)
Disclosures
no disclosures
no disclosures
no disclosures
Berenberg Capital Markets LLC owned 1% or more of the outstanding shares of any
class of the subject company by the end of the prior month.*
Over the previous 12 months, Berenberg Capital Markets LLC has managed or comanaged any public offering for the subject company.*
Berenberg Capital Markets LLC is making a market in the subject securities at the time of
the report.
Berenberg Capital Markets LLC received compensation for investment banking services
in the past 12 months, or expects to receive such compensation in the next 3 months.*
There is another potential conflict of interest of the analyst or Berenberg Capital
Markets LLC, of which the analyst knows or has reason to know at the time of
publication of this research report.
* For disclosures regarding affiliates of Berenberg Capital Markets LLC please refer to the
‘Disclosures in respect of section 34b of the German Securities Trading Act
(Wertpapierhandelsgesetz – WpHG)’ section above.
Copyright
The Bank reserves all the rights in this document. No part of the document or its content may
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08/12/2014
41
4. Contacts
Contacts
INSTITUTIONAL SALES / SALES TRADING
Hamburg
Dusseldorf
Institutional Sales
Michael Brehmer
+49 40 350 60 704
Nico Bürger
+49 40 350 60 483
Sabine Hahn
+49 40 350 60 754
Lutz-Dieter Mikus
+49 40 350 60 752
Ingo Pufahl
+49 40 350 60 499
Sven Zimatrys
+49 40 350 60 390
Institutional Sales
Jörg Bunse
+49 211 540 728 44
Stephan Burmeister
+49 211 540 728 41
Sebastian Krammich
+49 211 540 728 43
Sales Trading
Daniel Meier
+49 211 540 728 42
London
Sales Trading
Jan Bruhns
+49 40 350 60 703
Institutional Sales
Stefan Binder
+44 20 3207 7882
Conor Daly
+44 20 3465 2734
Romain Foussadier
+44 20 3207 2695
Alexandru Toroican
+44 20 3207 7919
DEBT CAPITAL MARKETS
Frankfurt/Main
Sales Trading
Aleksandar Doric
+43 1 22 757 24
Rainer Kapeller
+43 1 22 757 13
Vienna
Dominik Gansloser
+49 69 91 30 90 566
Jennifer Rojahn
+49 69 91 30 90 562
Sven-Erik Schipanski
+49 69 91 30 90 560
Christian Wöckener-Erten
+49 69 91 30 90 565
Alexandra Ács
+43 1 227 57 23
Renate Mayer
+43 1 227 57 15
RESEARCH
Corporates
Public Sector & Financials
Alexandre Daniel
+49 69 91 30 90 593
Jannik Prochnow
+49 69 91 30 90 595
Patrick Weber
+49 69 91 30 90 594
Philipp Jäger, CIIA, FRM
+49 69 91 30 90 590
Helge Schunck
+49 69 91 30 90 591
Timo Segieth
+49 69 91 30 90 592
08/12/2014
Vienna
Institutional Sales
Marco Ferrari
+43 1 22 757 29
Klaus Giesecke
+43 1 22 757 14
Stefan Haupt
+43 1 22 757 20
Dr. Robert Hengl
+43 1 22 757 22
Gerald Kohlmayer
+43 1 22 757 18
Christoph Mayrhofer
+43 1 22 757 12
Iris Sahinoglu
+43 1 22 757 17
Dr. Marija Tomic
+43 1 22 757 16
Martin Zezula
+43 1 22 757 21
E-Mail: [email protected]
Internet: www.berenberg.com
43

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