Nordic Credit Rating (NCR) has affirmed its 'BBB+' long-term issuer rating on Norway-based salmon farmer SalMar ASA. The outlook is negative. 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 in relation to its peers. This is attributed to cost-efficient production, favourable farming locations, strong cash flow and moderate financial leverage. SalMar has had an active role in restructuring the Norwegian salmon industry, generating significant synergies and effectively cementing its position as the world's second-largest salmon farmer.
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 environmental and disease-related challenges (biological issues), with the industry particularly affected by higher costs for sea lice treatment. We expect this will lead the sector to invest in new farming technology. These factors have also contributed to volatile EBITDA margins. In addition, the sector faces political risk due to its profitability and perceived environmental impact.
Negative outlook
The negative outlook reflects our view that the company's long-term financial leverage direction is uncertain. While we expect that margins will rebound since the biological issues related to string jellyfish and winter wounds seem to have passed and feed costs are on the way down, we also see a risk that increased US tariffs will trigger lower demand and prices. A strengthening of the Norwegian krone, in particular towards the euro but also towards the US dollar, is also a risk factor for SalMar. Moreover, SalMar increased its net debt more than we expected during 2024. This is mainly due to lower cash flow but could indicate that the company's risk appetite may be higher than we previously assumed.
We could lower the rating to reflect EBITDA margin below 30% from 2025, or funds from operations (FFO) to debt below 40% for a prolonged period. We could also lower the rating in the event of increasing biological problems, such as disease and sea lice.
We could revise the outlook to stable to reflect FFO to net debt above 50% for a prolonged period; and EBITDA margin above 30% from 2025. We could also revise the outlook if SalMar exhibited a reduced risk appetite, for example, lower dividend payouts or tighter net debt to EBITDA target.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB+ | BBB+ |
| Outlook: | Negative | 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.