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Rating action

Scope Ratings GmbH (Scope) has today affirmed the BBB-/Stable issuer rating of Norwegian agriculture company Felleskjøpet Agri SA. Felleskjøpet’s senior unsecured debt rating has been affirmed at BBB-.

The affirmation reflects the expectation of stable credit metrics in FY2024 due to working capital management, as demonstrated by the grain sale transaction executed in December 2024. This is despite a cyber-attack at Granngården, a weakening tractor segment and a below-average grain harvest in 2023 negatively impacting profitability. While the stronger business risk profile, supported by the stabilising role of the business in the grain markets, outweighs the moderate financial risk profile, Scope expects that a recovery in credit metrics in 2025 will prevent the view from being undermined.

The full list of rating actions and rated entities is at the end of this rating action release.

Key rating drivers

The leading position in the Norwegian grain market and Felleskjøpet's strong and dominant market share in tractors, fertilisers, seeds and feed concentrates, as well as the overall relatively stable and diversified business model with retail outlets supported by a cooperative corporate structure, benefit the company's credit profile. The below-average 2023 harvest negatively impacted H1 2024 results, while the average 2024 grain harvest is expected to be comparatively positive for H2 2024 and 2025 results, with a contained debt-funded working capital build-up. The cyber-attack on Tietoevry's data centres, which hosted all of Granngården's data, had a devastating impact on Felleskjøpet's Swedish retail business in 2024. Countering this pressure on credit metrics was Felleskjøpet's working capital management, with an overall reduction in inventory throughout the year and a grain transaction executed in December 2024 relieving pressure on credit metrics. As a result, Scope expects Felleskjøpet's credit metrics to remain stable in FY2024 despite lower EBITDA, before a cautious recovery in 2025. The extent of the recovery remains uncertain due to a challenging tractor market, an ongoing costly ERP project and no uplift from an only average grain harvest, although mitigating factors come from the cautiously improving market sentiment for farmers.

Business risk profile: BBB- (unchanged). 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 relatively stable but low, with a more mixed picture at segment level: The bakery segment has the highest margins and managed to increase margins in 2024. The retail outlet Granngården was hit hard by the cyber-attack on its data centres in 2024 and underperformed significantly, although this is a one-off and Scope expects margins to return to 2023 levels in 2025.

Financial risk profile: BB+ (unchanged). The financial risk profile is considered slightly weaker than the business risk profile. Leverage, as measured by Scope-adjusted debt/EBITDA*, is 3.5x for 2023, up from 3.4x for 2021 and 2022, as significant investments and net working capital requirements were met by increased debt. EBITDA levels in 2024 were significantly impacted by the cyber-attack at Granngården, while a weakening tractor segment and a below-average grain harvest in 2023 also contributed negatively to profitability. The average grain harvest in 2024 reduces the need for debt-funded working capital build-up and prevents leverage to deteriorate further, but it is anticipated to result in lower grain sales proceeds in 2025. The company executed a grain sale transaction of around NOK 190m in December 2024 to further improve its working capital management and thereby improve EBITDA in an otherwise difficult year. This is in addition to careful inventory management and reduction throughout 2024, as well as payables extensions. All in all, Scope expects leverage, as measured by debt/EBITDA, to remain at 3.5x at the end of 2024, at the high end of the company's comfort zone of 2.0x-3.5x. Scope also points out that the seasonality of working capital and cash levels leads to significant swings in leverage throughout the year, which is well understood by investors and banks (i.e. covenants are only measured in Q2 and Q4), but suggests the need for a conservative assessment of credit metrics. Going forward, Scope expects slightly higher positive operating cash flows to support deleveraging, with debt/EBITDA expected to fall below 3.5x and Scope-adjusted funds from operations/debt ratios of 20-30%. Interest coverage is expected to bottom out at 4x in 2024 and then recover to levels above 5x in the coming years, driven by a recovery in EBITDA, while debt and interest payments decline slightly. The recovery in the company's credit metrics depends on the reversal of the exceptional impact of the cyber-attack, but also requires improvement in the broader retail and core grain segments, continued growth in the bakery segment and stabilisation of the weakening in the machinery segment.

Liquidity: adequate (unchanged). Liquidity is deemed adequate based on good access to banks and domestic bond markets and short-term debt coverage (including undrawn credit lines) consistently above 200%.

Supplementary rating drivers: credit-neutral (unchanged). Scope has not made any adjustment for supplementary rating drivers. Last year's tightened leverage target of 2.5x-3.0x in the financial policy is supportive, although the company is currently well outside this target. With respect to ownership, governance and structure, some of the cooperative ownership elements were seen as positive factors for the business risk profile, in addition to the supportive element of being a market regulator in grain markets (ESG factor).

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating sensitivities

The Stable Outlook reflects Scope’s expectation that Felleskjøpet will continue to hold leading market positions and be important to the overall value chain of farmers in Norway. It also assumes no change to the cooperative structure as well as to the regulatory conditions and protective measures applicable to the national agricultural sector. Financially, Scope expects leverage to remain unchanged at 3.5x for FY2024 and to recover towards 3x thereafter. This is supported by the company's ongoing working capital efforts on inventories and payables, which are bearing fruit and are expected to continue, and cautious signs of improvement in the agricultural market, despite continued high levels of capital expenditure.

The upside scenario for the ratings and Outlook is:

1. Scope-adjusted leverage sustained below 2.5x.

The downside scenarios for the ratings and Outlook are (individually or collectively):

1. Leverage sustained at or above 3.5x.
    
2. FOCF/debt below 5% on a sustained basis.

Debt ratings

Scope has affirmed the ratings for senior unsecured debt at BBB-, in line with the rating action on the underlying issuer ratings.

Environmental, social and governance (ESG) factors

With respect to ownership, governance and structure, some of the cooperative ownership elements were seen as positive factors for the business risk profile, in addition to the supportive element of being a market regulator in grain markets.

All rating actions and rated entities

Felleskjøpet Agri SA

Issuer rating: BBB-/Stable, affirmation

Senior unsecured debt rating: BBB-, affirmation

*All credit metrics refer to Scope-adjusted figures.
 
Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for these Credit Ratings and/or Outlook, (General Corporate Rating Methodology, 16 October 2023; Retail and Wholesale Rating Methodology, 26 April 2024; Consumer Products Rating Methodology, 31 October 2024), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlook and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlook and the principal grounds on which the Credit Ratings and/or Outlook are based. Following that review, the credit ratings were not amended and outlook was amended before being issued.

Regulatory disclosures
These Credit Ratings and/or Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and/or Outlook are UK-endorsed.
Lead analyst: Thomas Faeh, Executive Director
Person responsible for approval of the Credit Ratings: Eugenio Piliego, Senior Director
The Credit Ratings/Outlook were first released by Scope Ratings on 25 January 2022. The Credit Ratings/Outlook were last updated on 31 January 2023.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use/exclusion of liability
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