Scope Ratings GmbH (Scope) monitors and reviews its credit ratings on an ongoing basis and at least annually, or every six months in the case of sovereigns, sub-sovereigns and supranational organisations.

Scope performs monitoring reviews to determine whether material changes and/or changes in macroeconomic or financial market conditions could have an impact on the credit ratings. Scope considers all available and relevant information when undertaking the monitoring review.

Monitoring reviews are conducted by performing a peer comparison, benchmarking against the rating-change drivers, and/or reviewing the credit ratings’ performance over time, as deemed appropriate by the Lead Analyst or Analytical Team Head, in addition to an assessment of all aspects of the relevant methodology/ies, including key rating assumptions and model(s). Scope publicly announces the completion of each monitoring review on its website.

Scope completed the monitoring review of the issuer rating of BBB-/Stable on Felleskjøpet Agri SA, and the BBB- senior unsecured debt rating, on 25 January 2024.

This monitoring note does not constitute a credit rating action, nor does it indicate the likelihood that Scope will conduct a credit rating action in the short term. Information about the latest credit rating action connected with this monitoring note along with the associated rating history can be found on www.scoperatings.com.

Key rating factors

The leading position in the Norwegian grain market and Felleskjøpet’s strong and dominant market share in fertiliser, seeds and feed concentrate, in addition to the overall relatively stable and diversified business model supported by a cooperative company structure benefits the company’s credit profile. The good grain harvest in 2022 positively impacted 2023 results, while the subpar grain harvest of 2023 is expected to negatively impact results in 2023 and 2024, somewhat mitigated by lower debt funded working capital build-up needs. Overall, Scope expects Felleskjøpet’s credit metrics to remain relatively stable, with the expected record-high agriculture settlement payment to farmers in early 2024 benefiting Felleskjøpet’s revenue and credit metrics.

Felleskjøpet’s business risk profile is supported by protective measures for the Norwegian agricultural sector, including tariffs on selected foreign input factors and the company’s leading position in the Norwegian grain market where it serves as the market regulator. Felleskjøpet’s geographical diversification is limited to Norway (80% of revenues) and Sweden (20%), resulting in a relatively strong dependency on the Norwegian agriculture sector. Felleskjøpet has a diverse product offering along the agriculture value chain, reducing the reliance on any single product. The company has a diverse customer base of over 39,000 farmers which are also ‘owners’ on the agricultural side, in addition to all its retail and commercial customers. Felleskjøpet’s overall profitability margins are stable but low, with the picture more mixed on the segment level.

The financial risk profile is assessed slightly weaker than the business risk profile. Leverage as measured by Scope-adjusted debt/EBITDA was around 3.4x for 2021 and 2022 due to significant investments and net working capital needs met by increased debt levels and is expected in the same range also for 2023E. Going forward, Scope expects slightly increased operating cash flows and stable debt to benefit deleveraging, with Scope-adjusted funds from operations/debt ratios of 20%-30%. Interest coverage is expected to remain solid at levels above 4x. Liquidity is deemed adequate based on good access to banks and domestic bond markets and short-term debt coverage (including undrawn credit lines) above 200%.

Scope has not made any adjustment for supplementary rating drivers. The tightened leverage target of 2.5x-3.0x in the financial policy is supportive. With respect to ownership, governance and structure, some of the cooperative ownership elements were considered as positive factors for the business risk profile.

The methodologies applicable for the reviewed ratings and/or rating Outlook (General Corporate Rating Methodology, 16 October 2023; Retail and Wholesale Rating Methodology, 27 April 2023; Consumer Products Rating Methodology, 3 November 2023) are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
This monitoring note is issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0.
Lead analyst Thomas Faeh, Executive Director

© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.