Announcements

GCR accords an initial rating of BBB(NG) to Fidson Healthcare Plc; outlook Stable.

Johannesburg, 23 Jan 2014 — Global Credit Ratings has today assigned Fidson Healthcare Plc initial national scale issuer ratings of BBB(NG) and A3(NG) in the long term and short term respectively; with the outlook accorded as Stable. The rating(s) are valid until 11/2014.

RATING RATIONALE

Global Credit Ratings has accorded the above credit rating(s) on Fidson Healthcare Plc based on the following key criteria:

Having begun operations in 1995 as a distributor of pharmaceutical products, Fidson Healthcare Plc (“Fidson” or “the Company”) has developed a strong position in the Nigerian pharmaceutical industry. Fidson listed on the Nigeria Stock Exchange in 2008 and is currently one of the top three pharmaceutical companies in Nigeria. Its first local manufacturing facility was set up in July 2002 (subsequently ceded to an international joint venture) and a second plant in 2007. The Company is currently building a new manufacturing facility, which is expected to become operational during 3Q F14.

Fidson’s revenue has risen at a 12.3% CAGR over the review period, albeit fluctuating. In this regard, firmer revenue growth was evidenced in F08 and F09 following the construction of the second plant, whereafter security challenges and a weak operating environment saw turnover decline by an annualised 7% for the 18 month F11 period. However, revenue improved by an annualised 51% to N7.2bn in F12, outperforming budget by 10%. Fidson reports firm gross margins, which have historically averaged 56%, although high administrative and selling expenses have seen the EBITDA margin decline from a period high of 19% in F10 to 15% in F12. Nevertheless, operating profit reached a review period high of N855m in F12. Moreover, for the 8 months to August 2013 (“YTD13”), Fidson was on track to meet budgeted revenue and operating profit targets of N9bn and N1bn respectively.

Historically, debt levels have been moderate, with net gearing and net debt to EBITDA reported below 20% and 80% respectively. However, gross debt rose from N673m at FYE09 to N2.7bn at FYE12, largely to finance on-going expansion. Consequently, net gearing registered at 47% at FYE12 (FYE11: 43%), while net debt to EBITDA equated to 234%, albeit slightly below the review period high of 290% at FYE11. Net interest cover improved to 4.6x at YTD13, from 2.7x in F12. Despite the anticipated bond issue during F14, robust earnings should contain gearing and net debt to EBITDA to moderate levels of 27% and 86% at FYE14 respectively. However, as at YTD13, debt was in excess of N3bn.

Attainment of budgeted revenue and improved profitability margins will strengthen Fidson’s financial position and support debt serviceability, potentially leading to upwards rating migration over the medium term. This would be supported by the successful completion of the ongoing capex project and planned diversification into other pharmaceutical categories. Conversely, any delay in completing the capex project would result in budget underperformance. A significant rise in debt and persistently elevated gearing metrics beyond what has been forecast would increase financial strain and reduce interest coverage to low levels, likely leading to a rating downgrade.

ANALYTICAL CONTACTS
Primary Analyst
Adekemi Adebambo
Analyst
+23 41 462-2545
adekemi@globalratings.net
Committee Chairperson
Eyal Shevel
Sector Head: Corporates
Johannesburg
+27 11 784 1771

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

GCR’s Global Master Criteria for Rating Corporate Entities

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GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

Fidson Healthcare Plc participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.

The credit rating/s has been disclosed to Fidson Healthcare Plc with no contestation of the rating.

The information received from Fidson Healthcare Limited and other reliable third parties to accord the credit rating included the 2012 audited annual financial statements (plus four years of comparative numbers), management accounts for the 8 months to 31 August 2013, internal and/or external management reports, budgeted financial statements for the period 2013 to 2016, corporate governance and enterprise risk framework, industry comparative data and regulatory framework and a breakdown of facilities available and related counterparties. In addition, information specific to the rated entity and/or industry was also received.

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ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GCRRATINGS.COM. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GCRRATINGS.COM/RATING_INFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR's CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THIS SITE.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

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