S&P downgrades Valeo Foods’ credit rating

Higher costs to squeeze Jacob’s biscuits-owner’s margins amid rampant inflation

Valeo Foods, the Dublin-headquartered company that counts Jacob’s biscuits and Batchelor’s baked beans among its brands, has had its credit rating downgraded by S&P on foot of rising concern about consumer price inflation in Ireland and the UK.

S&P on Friday cut the company’s credit rating to B-, warning that “high operating-cost inflation” is “pressuring Valeo Foods’ profitability”.

Increasing its debt load projections for Valeo this year to between 8.5 and 9 times the company’s earnings, the ratings agency said its debt levels had increased following a number of debt-funded acquisitions in recent years.

The Dublin company, which was itself acquired by Burger King-owner Bain Capital last year, bought Canadian maple syrup brand Bernard in May for roughly €100 million.

The deal, which “marked the group’s expansion” into North America, S&P said, “fits overall into [its] growth strategy” and allowed the company to expand “its consumer spreads business”. At home, Valeo also owns a host of familiar brands including the Odlums, Chef sauces, and Robert Roberts coffee.

S&P analysts said that the “diversity of brands” and the prevalence of “ambient foods” — sometimes called shelf staples, which include tinned foods, sauces and similar items — in the Valeo portfolio should insulate the company from price shocks.

“We continue to forecast stable demand for ambient foods and believe Valeo Foods’ diverse product range and price positioning is well suited to consumers, which are seeing their disposable income decreasing in the main markets of the UK and Ireland,” the agency said.

But while Valeo remains “well funded”, S&P said inflation was likely to squeeze the company’s margins.

“We believe that profitability over the next months should remain constrained by the high cost inflation in raw materials, energy, and labour, as well as supply-chain disruptions, and only partly offset by proactive price increases and the stability of the ambient food category,” S&P said.

“That said, we recognise that Valeo remains well funded with no near-term refinancing risk.”

Ian Curran

Ian Curran is a Business reporter with The Irish Times