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Expert RA Affirms the ruBBB Rating of OR GROUP and Raises the Outlook from Developing to Stable
Novosibirsk, 10 June 2021: Expert RA rating agency has affirmed the credit rating of OR non-financial corporation at ruBBB level and raised the outlook from developing to stable.
OR GROUP (previously Obuv Rossii) is a modern selling platform comprising the Westfalika.ru marketplace, an ecosystem of services and a chain of sales and service outlets under the Westfalika brand. By the end of May, the chain amounted 829 objects in 330 towns and cities in Russia, which positively impacts the asset concentration assessment. The size of the network of sales and service outlets, along with high diversification of the line of its products and services and the absence of a hard-to-replace supplier, allows the assessment of business concentration as a positive factor. The Group actively develops an ecosystem of services, including sales of goods with instalment payments and extension of loans only to clients from their customer base. There is a subsidiary company within the Group — Arifmetika MFC — with a license for micro-financial services.
The agency gives conservative estimates of the risks portfolio of the main economic sectors where the Group operates. In 2020, retail and wholesale product sales made about 45% of EBITDA, while cash loan extension made 55%. Such a ratio is not typical and is a result of a significant EBITDA decrease in retail in 2020. In 2019, this ratio was 68% to 32%. At the end of 2021, the agency is expecting a growth of the retail share in EBITDA. Moderately high evaluation of market and competitive positions with the consideration of the nationwide footprint of the Group's business and the development of various formats softens the business risk measurement.
Group's profitability is high; the EBITDA margin in 2020 was 21% (in 2019 — 26%). The high marginality of the Group has a positive influence on the rating even considering weaker performance in 2020. Consolidated revenue decrease by 21% year-on-year and made up RUB 10.8 bln. The agency expects that profitability in 2021-2022 will also remain at a level higher than 20%.
A high debt load level exerts the most significant pressure on the rating. According to the agency's calculation, the ratio of debt as of the end of 2020 to LTM EBITDA increased up to 5.9x; the net debt to LTM EBITDA ratio — up to 5.8x. At the end of 2019, the net debt to LTM EBITDA ratio was 3.3x. Lower traffic in October and November 2020 caused by the second pandemic wave resulted in reduced EBITDA and growth in the net debt/EBITDA value over 4.5x, which exceeds the minimum benchmark for the factor according to the methodology. The agency expects the net debt/EBITDA ratio to be lower than 4.5x by the end of 2021.
The Group's anticipated liquidity is assessed at a moderately high level due to the negotiations held in 2020-2021 with lending banks and revision of repayment schedules and limit actualization. The Group agreed upon a covenant revision as well; limits of net debt/EBITDA ratio were increased, but for two bond issues (001Р-01 and 001Р-02), due to their structure, covenants remained at the level of 4. As the agency expected in its last release, the Company broke these covenants at the end of 2020, which led to the Group's offer announcements for bond issues in the total amount of RUB 2.5 bln; only RUB 38.2 mln were presented for redemption. Due to the small amount of the bonds presented for redemption, the Group retained sufficient reserves of funds to service its credit obligations, so the agency changed the outlook from developing to stable.
Corporate risks support the rating. Group's transparency degree is highly evaluated as well as the corporate management system with the observation of the rights of all stakeholders and the risk management organization quality. Four of the seven members of the Board of Directors are independent directors, which also positively influences the rating. The Company has internal audit and internal control departments, the risks are analyzed, and a risk map is made.
Strategic plans of the Groups for the next three years do not outline further rollout of the store chain. The main task is to enhance the operating sales outlets' efficiency due to growing conversion and proceeds per square meter, to develop online sales and a services ecosystem. In 2020, the Group significantly diversified its stock, modernized sales outlets, making them general stores and transferred to a marketplace model while cooperating with suppliers. Currently, the Company deals with over 1,000 suppliers from new product groups. Within the strategy aimed at the integration in the logistic infrastructure of the online sales market, the Company is developing projects of partner's pick-up points (PUP) based on its sales chain, which enables to attract additional traffic to the stores. In 2020, OR GROUP issued more than 1.2 mln parcels; at present, the number of PUPs is about three thousand. Pursuing the concept of a store as a service outlet, the Group is developing financial services, including cash loans. Since the end of 2020, the Company has been implementing rebranding which is aimed at changing positioning from a specialized fashion retailer to a multicategory selling platform.
The assets, according to the consolidated financial reports as of 31 December 2020, were RUB 31.2 bln, the capital was RUB 15 bln. Group's revenue in 2020 made up RUB 10.8 bln, net profit was RUB 563 mln.
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