Nordic Credit Rating (NCR) said today that it had lowered its long-term issuer rating on Norway-based food producer Nortura SA to 'BB+' from 'BBB-'. The outlook is stable. At the same time, the short-term rating was lowered to 'N4' from 'N3'. The senior unsecured issue rating was lowered to 'BB+' from 'BBB-' and the subordinated debt issue rating was lowered to 'BB-' from 'BB'.
Rating rationale
The rating action on the long-term issuer rating reflects our view that Nortura's financial recovery from an extraordinarily weak 2022 will be slower, and more uncertain, than we previously anticipated. The company's financial metrics have been under pressure since 2022 and it has struggled to fully recover, largely due to limitations on its ability to adjust prices and rises in input costs due to inflation. We expect sales growth and margins to recover at a slower rate than we expected a year ago as a result of a lack of demand and rising inventory levels.
Positively, Nortura has received support, directly from its members and indirectly from the government, over the past year. We maintain our view that the company is likely to continue to receive some level of support due to its position as market regulator. We also view the efforts the company has taken so far this year to improve its financial and operational performance as positive.
However, we have revised our assessment of financial risk to reflect our expectation that ratios will worsen. We now expect NCR-adjusted net debt/EBITDA of 5.4x at end-2023 compared with our previous estimate of 4.6x. We expect the ratio to improve modestly through 2025 to 4.4x, which would be a slower improvement than we previously projected.
Nortura's business risk profile remains in line with our expectations. However, we have revised our assessment of operating efficiency to reflect a slower and more uncertain improvement in EBITDA margins than we previously expected. The company reported an NCR-adjusted EBITDA margin of 1.3% in 2022, compared with our expectation of 1.9% and we now expect EBITDA-margins to remain below 3% until 2025.
We believe a significant risk remains that Nortura will breach its bank covenants in full-year 2023. However, we believe that the company's banks retain a long-term perspective and are willing to adjust covenants further in the event of any future breach.
Stable outlook
The stable outlook reflects our view that Nortura will maintain its regulatory role and solid market position. We now expect financial risk to remain elevated for longer than we previously anticipated, but take the view that the company will slowly improve its operating margins and credit metrics through strategic efficiency investments, and recover from ongoing supply-demand imbalances. Nortura demonstrated an ability to offset higher costs through price increases earlier this year, but problems with rising inventories led to downward adjustments in August. The outlook also reflects our view that Nortura's banks are likely to remain supportive in the event of future covenant breaches, and that any waiver stipulations will have no materially negative impact on our assessment.
We could raise the rating to reflect NCR-adjusted net debt/EBITDA sustainably below 3.5x and EBITDA/net interest sustainably above 4.5x, or a stabilisation of EBITDA margins, excluding one-offs, at around 3.5%.
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. We could lower the rating to reflect failure to improve key financial ratios in line with our forecast.
Rating list | To | From |
---|---|---|
Long-term issuer credit rating: | BB+ | BBB- |
Outlook: | Stable | Negative |
Short-term issuer credit rating: | N4 | N3 |
Senior unsecured issue rating: | BB+ | BBB- |
Subordinated issue rating: | BB- | BB |
Related publications
(i) Nortura SA 'BBB-' long-term rating unaffected by T1 2023 results, 13 Jun. 2023.
(ii) Nortura SA 'BBB-' long-term issuer rating affirmed; Outlook negative, 8 Mar. 2023.
(iii) Nortura SA 'BBB-' long-term issuer rating affirmed; Outlook negative, 27 Oct. 2022.
(iv) Nortura outlook revised to negative; 'BBB-' long-term issuer rating affirmed, 27 Sep. 2022.
Contacts:
Ylva Forsberg, analyst, +46768806742, ylva.forsberg@nordiccreditrating.com
Geir Kristiansen, analyst, +4790784593, geir.kristiansen@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 24 May 2022 and NCR's Group and Government Support Rating Methodology published on 18 Feb. 2022. For the full regulatory disclaimer please see the rating report.