Nordic Credit Rating (NCR) said today that it had affirmed its 'A-' long-term issuer rating on Norway-based defence and maritime technology supplier Kongsberg Gruppen ASA. The outlook is stable. At the same time, the 'N2' short-term issuer rating and 'A-' senior unsecured issue ratings were also affirmed.
Rating rationale
The long-term issuer rating reflects Kongsberg Gruppen's leading position in its niche markets, strong cash position and cash flow, and low financial gearing. The company's operating efficiency and EBITDA margins have improved due to an increased share of revenues from defence. While we regard the underlying trend in EBITDA margins as positive, the rating is constrained by cyclical weakness in the company's shipping and oil service operations and its small size in comparison with its peers.
We lower our standalone credit assessment by one notch due to reduced availability of funding from investors adverse to defence industry activity, even though the Russian invasion of Ukraine appears to have made some investors rethink their position. Conversely, we add back a notch to reflect the likelihood that the majority owner, the Norwegian government, would support the company if needed. In sum, the adjustment factors are neutral.
Stable outlook
The stable outlook reflects our expectation that Kongsberg Gruppen will maintain its position as a strategic investment for the Norwegian government and that the government will maintain its controlling interest. We expect that new regulations and energy solutions will support demand for the company's green technology in the maritime segment. We also expect that spending on defence will increase and that demand for Kongsberg Gruppen's advanced solutions will remain high. In addition, we assume that the company will maintain strong financial credit metrics.
We could raise the rating to reflect an increased proportion of income from defence at higher margins, an improved operating environment for the maritime segment, or a more positive investor attitude to defence companies.
We could lower the rating to reflect a reduction in government commitment or increased financial gearing, leading to NCR-adjusted net debt/EBITDA above 1.5x over a protracted period. We could also lower the rating to reflect reduced profitability (EBITDA margin below 10%).
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | A- | A- |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N2 | N2 |
| Senior unsecured issue rating: | A- | A- |
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 18 Feb. 2022, NCR's Rating Principles published on 24 May 2022 and NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022. For the full regulatory disclaimer please see the rating report.