Nordic Credit Rating (NCR) said today that it had affirmed its 'BB+' long-term issuer rating on Norway-based food producer Nortura SA. The outlook is stable. The 'N4' short-term issuer rating was also affirmed, as were the 'BB+' senior unsecured debt rating and 'BB-' subordinated debt rating.
Rating rationale
The long-term issuer rating reflects Nortura's weak financial metrics and continuous pressure on its margins. The company has been negatively affected in recent years by high inflation and volatile input costs. These factors have been exacerbated by limitations on its ability to adjust prices. Nortura's corporate structure reduces opportunities to achieve economies of scale due to a statutory obligation to take produce from farmers throughout Norway, which in turn impedes inventory management. The rating is constrained by increasing competition from producers, distributors, and retailers, as well as megatrends, such as public concern about emissions, animal welfare and health.
Nortura has a solid market position through its brands Prior and Gilde, with consumer demand met through a variety of distribution channels. The company's strong relationships with grocery retailers support its operations. The rating is further 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.
Stable outlook
The stable outlook reflects our view that Nortura will maintain its regulatory role and solid market position. We expect the company to improve its operating margins and credit metrics gradually through strategic efficiency investments, and so recover from ongoing supply-demand imbalances. Nortura demonstrated an ability to offset higher costs through price increases in 2023, but we note that inventory management continues to create challenges.
We could raise the rating to reflect NCR-adjusted net debt/EBITDA sustainably below 3.5x and EBITDA/net interest sustainably above 4.5x, EBITDA margins (excluding one-offs) stabilising at around 4%, and improved supply-demand predictability.
We could lower the rating to reflect debt covenant breaches leading to action by one or more of the company's banks, insufficient support or loss of regulatory role, or failure to improve key financial ratios in line with our forecast.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BB+ | BB+ |
| Outlook: | Stable | Stable |
| Short-term issuer credit rating: | N4 | N4 |
| Senior unsecured issue rating: | BB+ | BB+ |
| Subordinated issue rating: | BB- | BB- |
Contacts:
Anine Gulbrandsen, analyst, +4797501657, anine.gulbrandsen@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@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.