Our 'BBB-' issuer rating on Norwegian agricultural cooperative Nortura SA is unchanged following the publication of its results for the first four months of 2023. The outlook is negative. The 'N3' short-term rating, 'BBB-' senior unsecured rating and 'BB' subordinated debt rating are also unchanged. All ratings remain under criteria review.
Nortura reported a significant improvement in EBITDA in the first four months of 2023, up 243% from the corresponding period in 2022, at NOK 144m. Following a weak performance in 2022, significant efforts to reduce costs and improve earnings started to have a positive impact on profits in the period. Combined with a marginal increase in net debt from end-2022, the company's net debt to EBITDA ratio improved in the first four months and headroom under a revised net debt/EBITDA covenant was healthy. Assuming Nortura continues to improve its performance in line with the first four months, we would expect the rolling 12-month metric used to calculate the covenant to improve in the remainder of 2023.
Negatively, Nortura's financial risk remains elevated in our view. NCR-adjusted net debt/EBITDA (on a last 12-month basis) was 8.2x on 30 Apr. 2023, while interest coverage (EBITDA/net interest) was 2.4x. Both metrics have improved since end-2022, when they stood at 11.1x and 2x, respectively. We note that Nortura recently called a NOK 150m hybrid bond on its first call date in May. We take a positive view of the company's ability to repay the instrument in the currently stressed market conditions.
We view Nortura's healthy covenant headroom in the first four months of 2023 as positive, but remain aware that further covenant breaches are possible later in the year, following repeated breaches in 2022. In addition, we expect further improvements in profitability and leverage, and would want to see a reduction in concerns about the company's financial future before revising the outlook to stable.
This commentary does not constitute a rating action.
Contacts:
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@nordiccreditrating.com