Fitch wants to see better results at FrieslandCampina

Despite the fact that FrieslandCampina suffered a loss of millions last year and also ended up in a reorganization, credit rating agency Fitch remains remarkably mild. The dairy group maintains the BBB+ score with a stable outlook. Yet there is work to be done, because the credit rating agency wants the operating profit margin to increase soon, otherwise the creditworthiness will be at risk.

BBB+ means that the company is seen as relatively sound financially, although not excellent. An AAA status is given for this. Fitch substantiates the score based on the strong position that FrieslandCampina has in the global dairy market, both in the mature and emerging markets in Africa and Asia.

Reference is made to the relatively strong balance sheet. The announced reorganization by management, through which FrieslandCampina wants to cut costs, is also positive. On the other hand, the dairy group operates in commodity markets that are known for low margins. The credit rating agency assumes that FrieslandCampina will continue to apply a conservative dividend policy to its members, as well as a cautious acquisition strategy.

Profit margin must increase
Fitch expects working capital needs to remain stable, after peaking in 2022. That, combined with the improved margin and conservative investment and dividend policy, is likely to lead to positive cash flow until 2027. The credit rating agency also expects a recovery in operating profit in 2024, which will improve the debt position. This is a critical point to maintain the current status.

Specifically, Fitch estimates that the operating profit margin will recover to 6,2% this year. If this does not work, this indicates structural operational problems, which endangers the creditworthiness. Fitch also points to Dutch government policy on nitrogen and greenhouse gases. Although a risk, this does not currently constitute a direct reason for a lower credit rating. This is partly due to the election results at the end of last year, which indicate a different policy.

In the event of a downgrade of the creditworthiness, credit enhancers generally apply stricter conditions.

Wouter Job

Wouter Baan is editor-in-chief of Boerenbusiness. He also focuses on dairy, pig and meat markets. He also follows (business) developments within agribusiness and interviews CEOs and policymakers.

w.baan@boerenbusiness. Nl

© DCA Market Intelligence. This market information is subject to copyright. It is not permitted to reproduce, distribute, disseminate or make the content available to third parties for compensation, in any form, without the express written permission of DCA Market Intelligence.