Nordic Credit Rating has affirmed its 'BBB+' long-term issuer rating on Norway-based Lerøy Seafood Group ASA. The outlook is stable. The 'N2' short-term issuer rating and the 'BBB+' issue rating on the company's senior unsecured debt have also been affirmed.
Rating rationale
The affirmation reflects Lerøy Seafood's relatively strong market position in the profitable salmon farming industry. It also reflects the breadth of its operations as a fully integrated seafood producer with significant wildcatch, processing and distribution capabilities. The long-term issuer rating reflects the company's moderate financial leverage and strong cash flow, which should allow it to maintain a high level of investment, if necessary, to keep up with technological developments and create revenue growth.
The rating is constrained by the seafood sector's historical earnings volatility due to unstable prices as a result of variable supply and the fact that salmon farmers are effectively price takers, particularly in recurring periods of oversupply. It is also constrained by environmental and disease-related challenges, with the industry particularly impacted by high costs for treating sea lice and winter wounds, which we expect will require investment in new farming technology. These factors have contributed to volatile EBITDA margins despite strong credit metrics.
Stable outlook
The stable outlook reflects our view that moderate supply growth will support global salmon prices over the next three years. We expect average prices of above NOK 90 per kg over this period, assuming a stable EUR/NOK currency rate, albeit with marked seasonality. We also expect operational costs to fall in the remainder of 2025 and 2026 due to lower feed costs and disease-related expenses. In addition, we assume that regulatory changes will have no significant negative impact on the company's operations.
We could raise the rating to reflect more stability in supply and less price uncertainty, or lower costs and improved margin stability due to fewer biological problems.
We could lower the rating to reflect lower demand for Norwegian and Atlantic salmon in general, or higher financial leverage leading to interest coverage below 10x, or funds from operations/net debt below 45% over a protracted period. We could also lower the rating to reflect increased biological problems such as disease and sea lice.
Rating list | To | From |
---|---|---|
Long-term issuer credit rating: | BBB+ | BBB+ |
Outlook: | Stable | Stable |
Short-term issuer credit rating: | N2 | N2 |
Senior unsecured issue rating: | BBB+ | BBB+ |
Contacts:
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
Christian Yssen, analyst, +4740019900, christian.yssen@nordiccreditrating.com
Elisabeth Adebäck, analyst, +46700442775, elisabeth.adeback@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Rating Methodology published on 8 May 2023, NCR's Rating Principles published on 14 Feb. 2024 and NCR's Group and Government Support Rating Methodology published on 14 Feb. 2024. For the full regulatory disclaimer please see the rating report.