Moody’s Investors Service has announced that it has downgraded Boparan Holdings Limited, the parent holding company of 2 Sisters Food Group, from B3 to Caa1.
The ratings agency made the decision following what it described as a ‘further deterioration in the company's operating performance’ during the second quarter of its current fiscal year.
‘Weaker Than Assumptions’
"[EBITDA generation over the coming quarters will] remain weaker than our assumptions at the time of the rating downgrade to B3 in November last year," according to Paolo Leschiutta, a Moody's senior vice-president and lead analyst for Boparan.
"Although the recently announced disposal of Goodfella's will have a positive impact on the company's net debt position and will reduce somewhat the refinancing risk in relation to the GBP250 million notes due in July 2019, the Caa1 rating signals our concerns that the capability to improve profitability remains subject to significant execution risks while market conditions remain challenging," Leschiutta added.
Moody’s said that it expects Boparan's free cash-flow generation to remain below its original expectations, resulting in prolonged weaknesses in both the company's liquidity profile and in its credit metrics.
It noted that EBITDA generation during the second quarter ending January 2018 was around £30.2 million, which was around £10 million below its expectations. Anticipated full-year EBITDA in the region of £130 million to £135 million is ‘well below’ previous expectations, Moody’s noted.
Moody's recognises that the company is undertaking a number of measures to improve profitability and cash-flow generation, including price increases, efficiency savings, asset disposals, and better working capital management, the ratings agency noted, saying that its disposal of Goodfella’s is likely to be followed by additional asset disposals.
Initiatives
‘Some of the company's initiatives, however, remain subject, in Moody's view, to a high degree of execution risks and will continue to result in a number of one-off charges and exceptional restructuring costs, which will depress cash-flow generation or profit quarter after quarter,’ Moody’s noted.
It expects the company’s EBITDA improvement over the next 12 months to be ‘constrained by delays’ in recovering high input costs ‘due to the price-sensitive food retail market in the UK, competitive pressures, and further increases in the national living wage’.
It issued a ‘stable’ outlook on the company.
© 2018 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: European Supermarket Magazine.
