Nordic Credit Rating (NCR) said today that it had assigned a 'BBB-' long-term issuer rating to Norway-based food supplier Nortura SA (Nortura). The outlook is stable. At the same time we assigned an 'N-1+' short-term issuer rating. NCR also assigned 'BBB-' issue ratings to Nortura's senior unsecured bonds and 'BB' issue ratings to its subordinated bonds.
Rationale
The long-term rating reflects Nortura's solid market position through its brands Prior and Gilde. It also reflects the stable operating environment, in which steady consumer demand is served through a variety of distribution channels. Nortura's strong relationships with grocery retailers support the company's operations. In addition, the rating is supported by Nortura's statutory role as market regulator, which creates barriers to entry and ensures the company's systemic importance in the Norwegian food market.
The rating is constrained by constant and increasing competition from producers, distributors, and retailers. In addition, Nortura faces continuous margin pressure, intensified by a statutory obligation to supply competitors. The company's structure restricts opportunities to achieve economies of scale due to its statutory obligation to take produce from farmers throughout Norway. Nortura's credit metrics also constrain the rating, although this is offset by the company's prudent approach to risk. Megatrends, such as public concern about emissions, animal welfare and health, also constrain the rating.
Stable outlook
The stable outlook reflects our expectation that Nortura will maintain its regulatory role and good relationships with retailers. We also assume that the company will maintain its market position and remain resilient to competitive pressure. In addition, we expect Nortura to mitigate persistent margin pressure with ongoing investments to streamline operations and improve cost efficiency. We could raise the rating to reflect NCR-adjusted net debt/EBITDA below 2.5x and EBITDA/net interest above 10x or a significant improvement in operating margins above our estimates over a protracted period. We could lower the rating to reflect NCR-adjusted net debt/EBITDA above 4.0x and EBITDA/net interest below 6.0x. We could also lower the rating to reflect a reduction in demand that might weaken operating efficiency, a loss of the company's regulatory role or a decline in its market position.
| Rating list | Rating |
|---|---|
| Long-term issuer credit rating: | BBB- |
| Outlook: | Stable |
| Short-term issuer credit rating: | N-1+ |
| Senior unsecured issue rating: | BBB- |
| Subordinated issue rating: | BB |
If you have any questions, please contact:
Mille O. Fjeldstad, credit rating analyst, +4799038916, mille.fjeldstad@nordiccreditrating.com
Geir Kristiansen, credit rating analyst, +4790784593, geir.kristiansen@nordiccreditrating.com
The methodology documents used for this rating are NCR's Corporate Methodology published on 14 Aug. 2018 and NCR's Rating Principles published on 16 Sep. 2019. For the full regulatory disclaimer please see the rating report.