Valeo Foods must focus on turning around its UK snacking business and hold off from acquisitions to avoid any further deterioration in its credit rating, according to Moody’s.
The ratings agency also warned the ambient foods giant’s declining volumes would remain under pressure because of regulations around high in fat, sugar and salt (HFSS) products.
Moody’s – which holds a junk rating and negative outlook for Valeo – said the group was struggling to reduce its highly leveraged position, with an underperformance in the core UK business worsening the situation.
“Valeo Foods will have to meet its ambitious turnaround plan for its UK snacking business and achieve synergy and cost-saving targets in the next 12-18 months to prevent its credit quality weakening further,” the Moody’s note added.
Valeo’s debt stood at just more than €1.4bn at the end of March 2023 on adjusted EBITDA of €130m, reaching a ratio of 12.5x for the 12 months to September 2023, which Moody’s called “extremely high” for its current credit rating. However, the leveraged position is expected to improve in the current financial year, according to the note.
Debt at the Kettle and Rowse owner has been fuelled by an acquisition spree that has seen Valeo complete 19 deals since 2010, with the leveraged buyout of the group by new owner Bain Capital in 2021 also adding to the burden.
Since the Bain takeover, acquisitions have slowed down, with Valeo adding meat snacks group NWFE, pork scratchings maker Freshers Foods and Canadian maple syrup producer Les Industries Bernard & Fils to the portfolio.
Moody’s said Valeo’s new management team, led by Ronald Kers since the summer, would need to “pause to digest” and completely integrate these companies.
“In the next 18 months we think new management will announce some strategic decisions aimed at consolidation and ease off further debt-funded M&A,” the ratings agency added.
“We expect them to focus on finalising the integration of the acquired businesses; achieving the targeted synergies and cost savings; and improving the performance of the underlying business to strengthen credit ratios. Further acquisitions could potentially distract and damage the company’s credit quality, unless these are balanced by a significant equity injection.”
However, Moody’s highlighted the expertise in “significant business transformation” the management team brought to the group, with Kers having led a turnaround during his time at 2 Sisters.
The ratings agency also expected the operating performance of the UK snacking business to improve going forward from a low point in June.
Valeo employs more than 4,000 staff across 24 factories in Ireland, the UK, Italy, the Czech Republic, the Netherlands and Germany.
Established in 2010 when it acquired Irish ambient food businesses Batchelors and Origin Foods, Valeo today owns brands such as Jacob’s, Rowse, Odlums, Barratt, Balconi and Kettle.