Nordic Credit Rating (NCR) said today that it had affirmed its 'BBB+' long-term issuer rating on Norway-based SalMar ASA (SalMar). The outlook is stable. The 'N2' short-term issuer rating and the 'BBB+' senior unsecured issue rating were also affirmed.
Rating rationale
The long-term issuer rating reflects SalMar's strong profitability in relation to its peers. This is attributable 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 the company's 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, with the industry particularly impacted by higher costs for sea lice treatment, which we expect 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. This was exemplified by the Norwegian government's introduction of a 'resource rent' tax on aquaculture last year.
Stable outlook
The stable outlook reflects our view that low supply growth will support global salmon prices over the next three years. We expect average prices of around NOK 94 per kg over this period, assuming a stable EUR/NOK currency rate, albeit with marked seasonality. We believe that shareholders will bear the brunt of the impact of the resource rent tax on salmon farming in Norway, as we expect that the company will reduce dividend payments to offset the negative impact and/or reconsider its long-term investment plans.
We could raise the rating to reflect adjusted funds from operations (FFO)/net debt above 60% for a protracted period or lower cost levels through sustainable improvements in biological performance.
We could lower the rating to reflect adjusted EBITDA/net interest below 10x or adjusted FFO/debt below 40% for a protracted period, or an increase in biological problems, such as disease and sea lice.
| Rating list | To | From |
|---|---|---|
| Long-term issuer credit rating: | BBB+ | BBB+ |
| Outlook: | Stable | 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.