Young’s facing major challenges, says Moody’s

THE rating agency Moody’s has cast a shadow over the parent holding company of Young’s Seafood in its latest assessment of the company.
It says Young’s is facing challenging times due to its single focus on fish and seafood, likely stagnant sales in the frozen sector generally, intense competition and pricing pressure from the supermarkets, along with the loss of a ‘significant Sainsbury’s chilled salmon contract’.
Young’s lost the Sainsbury’s contract to Scotland’s biggest salmon farmer, Marine Harvest, in the summer.
As a result of these factors, Moody’s Investor Services has given the company a rating of Caa1, down from its previous rating of B3 before the £500 million sale of Findus Scandinavia and Europe to Nomad Foods in September.
The Moody’s report, which also points to the company’s high leverage, said: ‘The company expects to grow its EBITDA through gaining market share in both chilled and frozen sectors, benefiting from growth in chilled business and strong relationships with key retailers.
‘However, Young’s continues to face a number of operational challenges, such as a declining frozen food market and pricing pressure from large retail customers, recently exacerbated by a loss of chilled salmon contract with Sainsbury’s from November 2015 to another one of its suppliers.
‘Although some of the impact is expected to be offset by cost saving initiatives, the contract loss will have a significant impact on the company’s top line and EBITDA in 2016 financial year and Young’s needs to find new contracts to fill in the capacity left in one of its plants, being temporarily immobilised.’
The report adds: ‘Given the competitive nature of the sector, including competition with vertically integrated businesses, and highly concentrated retailers’ base, Moody’s sees some downside risks in this strategy.
‘The company’s top four customers, which constitute around 80 per cent of its total sales, are under significant price pressure from discounters. Combined with a very high leverage, heavily impacted by the inclusion of shareholder loans, this leads to a downgrade.’