EUR 407.14 For Business Accounts Only

KORIAN - Rating Report

RATING RATIONALE

• We are initiating coverage on Korian and assign a BB corporate credit rating.

• Our rating is underpinned by (i) robust long-term underlying trends for the nursing home industry backed by an ageing European population and rising rates of both chronic and cognitive diseases, (ii) Korian’s large scale and leadership positions in France (home market) and the rest of Europe and (iii) relative good geo-graphic diversification compared to peers with a solid footprint in Germany (#1), Italy (#2) and Belgium (#2). Thanks to several acquisitions realized outside France, Korian has reduced its exposure to its home market to 49% (LTM) from 60% in FY14.

• Our rating is mainly constrained by Korian’s high adjusted net leverage of 5.9x as of 30 June 2017. Although business prospects are positive and profitability should improve over the coming years, we believe that ex-panding EBITDAR will be largely offset by higher CapEx needs to open new facilities, to upgrade existing facilities, and to increase facilities’ ownership rate to 20% (from 14%) within 3 years. Thus, deleveraging pro-spects are relatively low in our view and we expect that our adjusted net leverage ratio will remain stable in the 5.5-6.0x area over our forecast horizon.

• We also take account of the recent mixed operational performance, with organic growth of 3.8% in FY16 and 2.5% in 1H17 slightly below peers, and stable EBITDAR margin compared to historical results. We believe that Korian has some headroom to increase organic sales growth in its domestic market and to improve prof-itability, notably in Germany. We expect that management’s focus toward organic growth and the integration of recently-acquired businesses will enhance operational performance over the coming years. Pricing power should improve on the back of the reconfiguration of several nursing homes, while sales volume is expected to increase through new bed openings (2.5k-3k beds per year).