Snacking Investments HoldCo Pty Ltd

The stable outlook reflects our view that Arnott's will continue to generate modest revenue growth over the next 12 months at least, driven by its longstanding market position and defendable core brands. We also expect the company to improve its operating performance, supporting modest margin growth and pushing EBITDA interest coverage beyond 2.0x over the next two years. Arnott's' significant ongoing financing obligations (interest, scheduled debt amortization, and operating lease commitments) will likely weigh on the rating over the next two years at least. In addition, exposure to mature, low growth markets, and threats from private-label competition will limit the pace of deleveraging. To this end, we see limited headroom for underperformance at the current rating level. We could lower

...Acquisitions in the cereal and snacks sector will test Arnott's (the trading name of Snacking Investments HoldCo Pty Ltd.) leverage. In our view, the investment in Diver Foods Pty Ltd.'s breakfast cereal and snacks business and the proposed acquisition of Freedom Foods Group Ltd. cereal and snacks business will moderately expand its offering. However, these acquisitions will be funded through existing debt facilities and will limit Arnott's' ability to reduce leverage over the next 12 months. We expect Arnott's' leverage (ratio of debt to EBITDA) to remain in the mid-to-low 7.0x range over the next two years. Highly leveraged capital structure remains a rating constraint. Arnott's has significant ongoing financing obligations of interest, scheduled debt amortization, and operating lease commitments. Prior to the onset of the pandemic, we believed the company had limited headroom for underperformance and restricted ability to defend against competitors at the current rating level. However,...

Full Report