Inflation is putting pressure on heavily indebted Valeo Foods

S&P has warned and downgraded the heavily indebted owner of Jacob’s Biscuits, Kettle Crisps and numerous other well-known grocery brands as inflation eats away at disposable income.

The agency on Friday lowered its credit rating for Valeo Foods, citing high levels of debt and reduced profitability following last year’s leveraged buyout by US private equity firm Bain Capital.

S&P raised its estimate for Valeo’s debt burden to nine times earnings this year, but said the company still had a stable outlook and was not exposed to refinancing risk.

“High operating cost inflation, the usual – albeit decreasing – lag in passing on price increases and integration costs are putting pressure on Valeo Foods’ profitability,” S&P said in a research note.

“Additionally, leverage has increased following debt-financed acquisitions while the capital structure formed in 2021 was already highly leveraged.”

While S&P said demand for ambient food across Valeo’s range, which also includes brands such as Odlums, Kelkin and Shamrock, was resilient, consumers saw their disposable incomes fall in the main markets of the UK and Ireland.

Kantar found in its latest grocery survey that Irish shoppers responded to 5.5 per cent grocery inflation by cutting back on branded items.

The market research firm said branded share of the typical shopping basket fell to 49 percent this spring after topping 50 percent in 2020 and 2021.

S&P said Valeo has yet to realize any cost savings from its recent acquisitions and is only generating sales growth in line with inflation, meaning profit margins are not growing.

As a result, the company’s debt is higher than forecast for this year, while forecast free cash flow has fallen from €40-50 million to just €10-20.

S&P said Bain’s track record of executing price increases gives him comfort that Valeo will be able to “curb” margin pressures over the next 18 months.

Headquartered in Dublin, Valeo was formed in 2010 through the merger of Origin Foods and Batchelors by private equity firm CapVest.

CapVest grew its all-Irish business over more than a decade into a major force in the ambient food space, making 17 acquisitions and growing sales to €1.1 billion in 106 markets.

The company was sold to Bain Capital, the owner of Burger King, Dunkin’ and Domino’s Pizza, for €2 billion last May. Inflation is putting pressure on heavily indebted Valeo Foods

Fry Electronics Team

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