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Rating action

Scope Ratings GmbH (Scope) has assigned a A-/Stable issuer rating to Norwegian consumer products company Tine SA. Scope has also assigned a senior unsecured debt rating of A- and a S-1 short term rating.

Rating rationale

Tine’s business risk profile benefits from its strong domestic market positions within Norway’s dairy market. This partly mitigates its low geographical diversification (around 83% of revenue is generated in Norway). Diversification in terms of product offering, suppliers and distribution networks is adequate and the company has a strong brand name domestically. Internationally, its cheese brand Jarlsberg is well-known and constitutes a growth focus for the company. Although the low volatility of Tine’s profitability margins is a positive factor, the company slightly lags behind some of its peers in terms of overall group EBITDA margins. The stability of its profitability is partly due to the relative stable market price for milk, which is set by the Norwegian government.

After some positive private sales volume effects in stores the last two years (covid-19 pandemic effects), Tine sees lower private volume in stores. Adding cost increases in energy, transportation, ingredients and packaging, Scope expects also reduced profitability margin in 2022 compared to 2021. Still, Scope believes that Tine’s long-term underlying cost-efficiency focus is good, driven by internal efforts to reduce costs to strengthen competitiveness.

The financial risk profile (A+) is stronger than the business risk profile (BBB). This is based on very conservative leverage ratios during the last two fiscal years, with a Scope-adjusted debt/EBITDA ratio of around 1x. Tine is prudent with its investment spending and Scope anticipates strong free operating cash flow/Scope-adjusted debt and strong financial flexibility in the medium term, with the expectation that leverage will remain below 1.5x in the short-to-medium term.

Scope makes no rating adjustments to supplementary rating drivers. Tine’s financial policy is well established and prudent as it aims to keep its net debt/EBITDA ratio below 2x, its equity ratio above 45% and its dividends (or repayments to members) in the 50%-75%* payout range. Its cooperative structure means that its member-owners receive a share of its profits based on sales, not on invested capital. Scope considers the structure to be well proven and stable, but does not conclude that any supplementary rating adjustments are justified based on ownership, governance or structure.

Outlook and rating-change drivers

The Stable Outlook reflects Scope’s expectation that Tine will continue to hold strong positions in its key segments and maintain good dairy product diversification. Further, the Stable Outlook assumes a continuation of conservative leverage and strong cash flow, exemplified by a stable operating environment and stable financial performance and resulting in Scope-adjusted leverage averaging around 1x in the absence of any new major growth investment plans.

A positive rating action could occur if investments decreased and financial targets became even more conservative in tandem with a move towards a net cash position. Could also happen if the company materially improve its diversification and/or profitability.

A negative rating action is conceivable if Tine’s business risk profile deteriorated through weaker market shares and/or falling profitability margins. Less profitable international growth could also trigger a negative rating action if combined with high capex and negative discretionary cash flow, leading to sustained Scope-adjusted leverage at around or above 2x.

Long-term and short-term debt ratings

The senior unsecured debt rating is in line with the issuer rating. Tine is also the bond-issuing entity.

The short-term rating of S-1 is supported by adequate liquidity, strong banking relationships and Tine’s well-established domestic capital market standing. 

*Editorial note: The number was amended from 70% to 75% on 15 August 2022 due to incorrect reference before.

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, (Corporate Rating Methodology, 6 July 2021; Consumer Products Rating Methodology, 30 September 2021), are available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
nformation on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks 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, third parties 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 the 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 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: Henrik Blymke, Managing Director
Person responsible for approval of the Credit Ratings: Olaf Tölke, Managing Director
The Credit Ratings/Outlook were first released by Scope Ratings on 16 June 2022. 

Potential conflicts
See www.scoperatings.com under Governance & Policies/EU Regulation/Disclosures for a list of potential conflicts of interest related to the issuance of Credit Ratings.

Conditions of use/exclusion of liability
© 2022 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Analysis GmbH, Scope Investor Services 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.