Fitch Ratings has assigned La Doria S.p.A. a final Long-Term Issuer Default Rating (IDR) of 'B' with a Positive Outlook.
Fitch has also assigned the EUR525 million senior secured notes (SSN) a final instrument rating of 'B+' with a Recovery Rating of 'RR3'.
The rating actions follow the placement of La Doria's SSN issuance. The final terms include an additional EUR25 million SSN issued, with the main terms conforming to the draft terms.
La Doria's ratings primarily reflect its niche scale and concentrated retail customer base, which is somewhat mitigated by its long-standing customer relationships and adequate operating profitability for a private-label food-processing company. The IDR is also anchored by La Doria's moderate leverage metrics and sustained positive free cash flow (FCF).
Fitch projects La Doria will be able to generate modest EBITDA growth, supporting low single-digit FCF margins and leading to adequate leverage headroom. Organic revenue expansion and EBITDA margin improvements, including through internal efficiencies and product mix upgrades, will firmly place La Doria within our sensitivities for a 'B+' upgrade over the next 12 to 18 months, which is reflected in the Positive Outlook.
Key Rating Drivers
Niche Product, Concentrated Customers: La Doria's ratings are driven by its niche in the food processing sector, corresponding to the 'B' rating category based on its scale. It has a highly concentrated customer base, with its top 10 clients representing about 75% of revenues. However, this is mitigated by La Doria's long-standing customer relationships and no contract cancellations, backed by its logistic and production capabilities. While La Doria's customers have stronger bargaining power, its margins of above 10% are high for the rating, which underscore its attractive product offering.
Sustainability of EBITDA Margins Critical: La Doria's ability to sustain its EBITDA margins at around 11% following an exceptionally strong performance in 2023 is key to its rating. Inflation-driven price increases and personnel cost reduction resulted in a Fitch-calculated EBITDA margin of 11.8% in 2023, versus under 10% three years ago. We see limited scope for further profitability improvement based on La Doria's organic contract base and low emphasis on product innovation.
However, we have factored in some leeway in the EBITDA margins to accommodate potential volatility, given La Doria's exposure to harvest yields and input commodity prices. Full delivery of management's planned initiatives may lead to margins stabilising at around 12%.
Slow Cost Pass-Through: La Doria benefits from its costs mainly being variable. Key cost items are raw materials, packaging and sourcing of trading products. The supplier base is moderately diversified, with the top five suppliers accounting for around 25% of cost of goods sold. La Doria's tomato sourcing is strong due to framework agreements with several producers, while pulses suppliers are more concentrated. However, La Doria remains exposed to fluctuations in pricing and yield of tomato and other commodities, with slow pass-through mechanisms of up to a year. This may affect its profitability in low-yielding seasons or geopolitical tensions, as in 2022.
Modest EBITDA Growth: Fitch projects modest EBITDA CAGR of around 1.5% for 2023-2027. Adjusted for the low input costs in 2023, the modelled CAGR is over 4.0%. Adjusted costs involved glass, tinplate and energy as an effect of governmental measures. For 2024, we estimate EBITDA margin contraction and a slower expansion towards 11.5% in 2027. This is due to cost efficiencies, operating leverage effects and a change in product mix as La Doria plans to focus more on higher-margin ready-made sauces. All these measures will be critical to driving profitability to or above 12%, which is our upgrade trigger. The inability to sustain current profitability will put pressure on ratings.
Currency Exchange Risk: La Doria's operations are exposed to foreign-exchange (FX) risks. The company's financial liabilities are euro-denominated, as are most of its expenses, while sourcing costs are in euros and US dollars, and about two-thirds of its turnover is in foreign currencies, mainly sterling. This increases the company's risk to FX-related profitability volatility. It has a hedging policy in place based on forward-rate agreements. However, this leaves room for FX-driven earnings and cash flow volatility.
Positive FCF: We estimate La Doria will generate positive FCF during 2024-2027, which together with stable EBITDA margins, is critical to the 'B' IDR. We expect positive FCF to be supported by moderate capex requirements and limited working-capital outflows. La Doria has factoring facilities in place to maximise liquidity and improve cash conversion. We expect factoring utilisation to rise in line with revenue growth. Challenges in maintaining operating profitability, or supply irregularities leading to higher working-capital requirements, would put the ratings under pressure.
Moderate Gross Leverage: We project La Doria's Fitch-calculated EBITDA gross leverage at 4.7x in 2024, which is low for the sector, but adequate for La Doria's business model. Sustained moderate leverage may support an upgrade over 12-18 months, which is reflected in the Positive Outlook. We forecast leverage to slowly strengthen to 4.2x by 2027. La Doria's ability to deleverage is contingent on its ability to grow EBITDA. Although the current leverage is strong for the sector, La Doria's input cost and FX volatility and lengthy pass-through mechanisms leave current leverage only adequate for the 'B' rating.
Net Leverage Headroom: We estimate the refinancing to provide around EUR110 million cash on balance sheet at end-2024, which we expect to grow thereafter. This leads to contained net leverage at 3.9x, set to improve below 3.0x by 2026 and offers headroom for bolt-on acquisitions, potentially contributing to faster deleveraging. However, we do not assume this liquidity will be used to prepay debt and consequently use gross leverage in our analysis.
Additional Dividends Possible: Acquisitions and dividend distributions may be an option, although these are not included in our base case. We view the approach to acquisitions as opportunistic as viable targets become available. Large cash balances may be used for additional shareholder distributions, as allowed by the financial documentation. La Doria has a put/call agreement with certain minority shareholders, but we do not expect it to be exercised in the medium term.
Derivation Summary
La Doria is active in tomato and vegetable processing, and in the distribution of its products via private-label agreements to large-scale retailers, mainly in the UK. It is involved in resilient consumer staples, its client base is concentrated and a limited share of branded production generates moderate pricing power. Fitch rates the company under its Packaged Food Navigator.
It compares well with a number of consumers, food and beverage leveraged buyouts in Fitch's public and private ratings coverage. La Doria compares well with Sigma Holdco BV (B/Positive). Sigma has materially larger scale, greater geographic diversification and higher margins, due to its branded portfolio and a different cost base. Although Sigma's product range is mainly focused on a single offering that is experiencing secular difficulties, we allow it higher debt capacity.
Nomad Foods Limited (BB/stable), strong in branded and private-label frozen food, has a stronger business profile both in scale and profitability. Nomad's leverage is also lower, justifying its larger debt capacity and higher rating.
Flamingo Group International Limited (B-/Stable) operates in a highly fragmented agriculture-like floriculture market with a concentrated customer base and limited expected FCF generation. Compared with La Doria it has smaller scale with limited diversification across geographical locations and its product portfolio. It also faces significant seasonality and is vulnerable to weather conditions.
Key Assumptions
Revenues to decrease 1.5% in 2024 due mainly to normalising prices followed by growth in the low single digits over the rating horizon
EBITDA margin in the range of 10.8% an 11.4% over the rating horizon
Capex of EUR30 million in 2024 before normalising at around EUR20 million in the following four years
FCF margins in the low single digits over 2024-2027
Dividends of EUR125 million in 2024 and none thereafter
No M&A
Recovery Analysis
Our recovery analysis assumes that La Doria will be considered a going concern (GC) in bankruptcy, and that it would be reorganised rather than liquidated. This is because most of its value lies within its client-and-supplier relationships, as well as production and logistic capabilities. We assume a 10% administrative claim.
We assess GC EBITDA at EUR100 million, after corrective measures and a restructuring of its capital structure would allow La Doria to retain a viable business model. Financial distress leading to a restructuring may be driven by La Doria losing some of its customer contracts, materials-sourcing challenges and difficulties in passing on its input costs, in which case its capital structure may become untenable.
We apply a recovery multiple of 5.0x, which is in the mid-multiple range for packaged food companies in EMEA. After deducting 10% for administrative claims, this generates a ranked recovery in the 'RR3' band, leading to a 'B+' instrument rating for the new SSN. This results in a waterfall-generated recovery computation output percentage of 68%.
Our estimates of creditor claims include a fully drawn EUR85 million super-senior revolving credit facility (RCF), and about EUR9 million of bilateral facilities, both of which rank ahead of the SSNs. We expect La Doria's existing receivables factoring facilities to remain in place during and post distress and not requiring an alternative funding solution, albeit being available at a reduced amount. This assumption is driven by the strong credit quality of the company's client base.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade:
EBITDA gross leverage remaining below 5.0x, through organic growth, integration of non-debt funded bolt-on targets or gross debt prepayment
EBITDA interest coverage remaining above 3.0x
Evidence of EBITDA margin expansion to above 12% by 2025, sustaining FCF margin above 3%
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade:
Increase in EBITDA gross leverage to above 6.5x, through lower profitability or debt-funded acquisitions
EBITDA margin below 9%, resulting in volatile FCF margins
EBITDA interest coverage weakening towards 2.0x or below
Reducing liquidity headroom
Failure of the EBITDA margin to effectively recover after the 2024 expected decline, together with a lack of deleveraging by 2025, which would lead to a revision of the Outlook to Stable
Liquidity and Debt Structure
Comfortable Liquidity: We estimate La Doria's cash balance at around EUR110 million at end-2024. Stable operating performance with minimal to neutral working-capital outflows and limited capex should support positive FCF of about EUR30 million to EUR50 million a year to 2027. La Doria also has access to a fully undrawn committed RCF of EUR85 million with no significant debt maturing before 2029.
Issuer Profile
La Doria is an Italy-based manufacturer of private label tomato, vegetable and fruit derivatives including sauces, soups, dressings, purees and juices.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
LA DORIA S.P.A. 
