Valeo Foods has secured a €50m (£42.7m) cash injection from private equity owner Bain Capital as a turnaround at the ambient giant gets underway.
A note from ratings agency S&P highlighted a reduction in debt leverage thanks to “resilient” demand at the company behind the likes of Kettle, Rowse and Barratt.
It said Valeo appeared “on track to turn around its UK snacking division… though more slowly than expected”.
S&P, which holds a junk B– investment rating for the Irish food manufacturer, added higher internal cashflows and a €50m equity injection by Bain in the final quarter of the current financial year ended 31 March 2024 would continue to support deleveraging.
The latest note represents a marked improvement at the group following a warning by fellow ratings agency Moody’s in December that Valeo was struggling to reduce its highly leveraged position and was underperforming in the UK.
S&P today forecast revenue growth of 12% to €1.55bn (£1.32bn) in 2023/24 thanks to good momentum from UK snacking and confectionery, with adjusted EBITDA boosted by significant price rises to €145m-€150m (£124m-£128m), compared with €130m in the prior year. It added the price hikes had also not yet affected average group volumes.
It means the debt to EBITDA ratio will fall significantly from 16.8x to 10x-11x, with Valeo in a better position to sustainably reduce debt in the next financial year.
S&P expected revenue growth to moderate this year and margins to improve, leading to debt leverage of about 9.5x, which it said was more in keeping with a B– rating.
However, the agency warned that retailer pressure to reduce prices as input cost inflation lessened could threaten its forecasts about the group.
“We are also monitoring the execution of the shareholder equity contribution and whether this would be deployed for debt reduction, given the very high burden of interest expenses on the group’s cashflow generation,” S&P said.
Moody’s previously called for Valeo to pause its M&A strategy to improve its debt position, which has been fuelled by an acquisition spree totalling 19 deals since 2010, as well as by the leveraged buyout of the group by Bain in 2021.
Bain and Valeo declined to comment.
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