Johannesburg, 19 Mar 2015 — Global Credit Ratings has today affirmed the national scale ratings assigned to Nampak Limited of A(ZA) and A1(ZA) in the long term and short term respectively; with the outlook accorded as Stable.
SUMMARY RATING RATIONALE
Global Credit Ratings has accorded the above credit rating(s) to Nampak Limited (“Nampak”) based on the following key criteria:
Nampak is Africa’s largest packaging manufacturer, with a broad offering spanning metal, plastics, glass and paper products. Its sizeable local market share across several product lines is underpinned by well entrenched relationships with its customers, extensive fixed capital and constant product innovation. The group has actively pursued expansion into Africa in recent years, and in F14, acquired a US$300m beverage canning plant in Nigeria. The African expansion is expected to drive future profitability, supported by its first-mover advantage in many countries. Nevertheless, the strategy has introduced additional risks, with regard to instability in some counties.
Operating conditions in South Africa have remained challenging with operating profit rising by just 2% to R1.9bn. However, the disposal of low margin businesses and cost rationalisation initiatives should support domestic profit growth going forward. In contrast, the Rest of Africa (“RoA”) saw revenue rise by 20% in F14 and trading profit by 24% to R616m. As the South African operations remain dominant in scale, the operating margin narrowed to a review period low of 9.3% in F14 (F13: 10%), albeit still above levels reported prior to F10.
Gross debt rose to R7.1bn at FYE14 (FYE13: R5.8bn), which saw net gearing rise sharply to 133% (FYE13: 21%), exceeding GCR’s initial expectations of around 100%. Net debt to EBITDA, however, was in line with anticipations, at 227% (FYE13: 53%). Of the debt, R3.6bn is foreign denominated, compared to negligible levels prior to FYE13. This heightens foreign currency exposure, given the weakness in the two major operating currencies (the Rand and Naira) in recent months. While offshore obligations are cross guaranteed by Nampak Products and the group, comfort is taken from the natural hedge provided by US$-invoicing of the majority of operations in the RoA and the R1bn in foreign currency reserves reported at FYE14. Nampak also had R14.1bn in committed bank facilities (of which R7bn were untapped). It is management’s intention to reduce gross gearing to below 80% (prior to adjustments of goodwill and intangibles) in the medium term.
Domestic operations are likely to remain subdued, given the uncertain macroeconomic outlook. Nonetheless, the group’s strong continental footprint and ongoing capacity enhancements continue to provide an important earnings underpin, supporting sound cash flows.
Positive rating action is dependent on the successful deployment of further capital into the RoA and the bedding down of new domestic plants and upgrades, translating to sustainable medium term cash flows. To the extent that this facilitates the timely redemption of outstanding debt and stronger credit protection metrics, this could support upward rating migration. Conversely, persistently elevated debt and gearing metrics or an unanticipated elevation in equity-based gearing beyond FYE14 levels could warrant a downward review of the ratings. Foreign currency exposure may also pose a risk to debt serviceability.
NATIONAL SCALE RATINGS HISTORY
Initial rating (Mar/2001)
Long term: AA-(ZA); Short term: A1+(ZA)
Last rating (Mar/2014)
Long term: A(ZA); Short term: A1(ZA)
Primary Analyst Secondary Analyst
Farai Mauchaza Patricia Zvarayi
Junior Analyst Senior Analyst
(011) 784-1771 (011) 784-1771
Sector Head: Corporate & Public Sector Debt Ratings
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Corporate Entities, updated February 2015.
Nampak Limited Rating Reports (2001 – 2014).
Nampak Products Limited Rating Reports (2004-2014).
RATING LIMITATIONS AND DISCLAIMERS
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SALIENT FEATURES OF ACCORDED RATINGS
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; and d.) the validity of the rating is for a maximum of 12 months, or earlier as indicated by the applicable credit rating document.
The Issuer and the Arranger participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received d adequate and has been independently verified where possible.
The credit rating/s has been disclosed to and contested by Nampak Limited and was amended following the provision of further material information by the entity.
The information received from Nampak Limited and other reliable third parties to accord the credit rating included the 2014 audited annual financial statements (plus four years of comparative numbers), investor presentations, corporate governance and enterprise risk framework as outlined on the annual report and a breakdown of debt facilities and related counterparties.
The ratings above were solicited by, or on behalf of, the Issuer of the Transaction, and therefore, GCR has been compensated for the provision of the ratings.
GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S CORPORATE GLOSSARY
|Cash Flow||The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.|
|Credit Risk||The possibility that a bond issuer or any other borrowers (including debtors/creditors) will default and fail to pay the principal and interest when due.|
|EBITDA||Earnings before interest, taxes, depreciation and amortisation is useful for comparing the income of companies with different asset structures as it calculated before excluding non-cash expenses related to assets.|
|Fixed Capital||Fixed capital is the part of a company’s total capital that is invested in fixed assets such as land, buildings and equipment that remains on the balance sheet, usually for years, but for at least one accounting period.|
|Gearing||Gearing, which is synonymous with leverage, can be used in two ways. The first refers to the extent to which a company is funded by debt and can be calculated by dividing its debt by shareholders’ funds. The second meaning refers to the amount of cash spent purchasing an option or a futures contract compared to the value of the position.|
|Liquidity Risk||The risk that a company may not be able to take or meet its financial obligations or other operational cash requirements due to an inability to timeously realise cash from its assets.|
|Operating Margin||Operating margin is operating profit expressed as a percentage of a company’s sales over a given period.|
|Operating Profit||Profits from a company’s ordinary revenue-producing activities, calculated before taxes and interest costs.|
GCR affirms Nampak Limited’s rating of A(ZA); Outlook Stable