Nordic Credit Rating (NCR) has affirmed its 'BBB+' long-term issuer rating on Norway-based salmon farmer Mowi ASA. The outlook is stable. At the same time, NCR affirmed its 'N2' short-term issuer rating and ' BBB+' long-term senior unsecured obligations issue rating, reflecting the flat debtor hierarchy.
Rating rationale
The affirmation reflects the company's strong profitability and cash flow, as well as moderate financial leverage. It is also underpinned by the company's strong market position as the world's largest salmon farmer and the only one with operations in all major global salmon farming regions. This may prove to be an advantage in an environment with increased protective tariffs. The rating also takes into account Mowi's fully vertically integrated operations, which help offset the impact of volatility in product and raw-material prices.
The rating is constrained by the seafood sector's historical earnings volatility due to unstable prices resulting from variable supply. It is also constrained by biological challenges, with the industry particularly affected by higher costs for sea lice treatment, which we expect will lead the sector to invest in new farming technology. These factors have also contributed to volatile EBITDA margins for Mowi in the past. In addition, the sector faces political risk due to its profitability and perceived environmental impact. This was exemplified by the Norwegian government's introduction of a 'resource rent' tax on aquaculture in 2023 and the proposed ban on open-net pen salmon farming in British Columbia.
Stable outlook
The stable outlook reflects our expectations that low salmon supply growth will support global prices over the next three years. We expect an annual average salmon price of around NOK 94 per kg (Oslo) during this period, albeit with strong seasonality. In addition, we believe that Mowi will keep adverse biological issues under control and that the recent cost inflation is slowing. We also believe that the company will maintain a moderate debt level.
We could raise the rating to reflect the company's commitment to a moderate financial risk profile, for example NCR-adjusted funds from operations (FFO) to net debt above 60% and EBITDA to net interest above 20x, and a more stable supply leading to reduced price uncertainty and improved margin stability. We could lower the rating to reflect higher financial leverage leading to net NCR-adjusted FFO to net debt below 30% and EBITDA to net interest below 10x over a protracted period. We could also lower the rating in line with a lower demand for Atlantic salmon or a persistent increase in biological issues 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.