Johannesburg, 28 Apr 2015 — Global Credit Ratings has today affirmed the national scale ratings assigned to Nampak Products 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 Products Limited (“Nampak Products”) based on the following key criteria:
Nampak Products’ ratings are premised on the explicit, unconditional and irrevocable guarantee provided by its parent Nampak Limited in respect of the company’s R2bn DMTN programme (plus R750m in respect of the CP programme), as well as explicit, unconditional and irrevocable guarantees amounting to R3.7bn in favour of its various banking counterparties. Nampak’s national scale long and short term Issuer ratings of A(ZA) and A1(ZA) respectively were affirmed by GCR in March 2015, with a Stable outlook accorded. The aforementioned guarantees are meant to place DMTN noteholders (and other company creditors, as stipulated by the bank guarantees) in the same position as they would have been had the group been the Issuer or debtor, and therefore rank pari passu with other Nampak obligations.
Nampak Products is a wholly-owned subsidiary of Nampak, comprised of several packing businesses operating both locally and in the region. Its consolidated operations have represented approximately 80% of Nampak Limited’s revenues over the review period, reflecting sound earnings and cash flow contributions. The company also guarantees some of Nampak Limited’s offshore obligations, such as the US$301m debt used to fund the Bevcan Nigeria acquisition in F14. These inextricable linkages underpin its strategic importance to Nampak Limited and are further supportive of the rating alignment.
Turnover rose by 9% to a new high of R15.8bn in F14, on the back of strong throughput from the rest of Africa. In this respect, the operating margin reverted to the review period high of 11% (F13: 9.8%), although some volume retraction saw operating income ease by 5% to R1.3bn. As with Nampak Limited, the bottom line was impacted by weak glass packaging results and a R428m write down of tin plate canning lines. Nonetheless, ongoing investment in facility upgrades and new regional businesses is expected to sustain strong medium term earnings.
Capex rose by 76% to R2.4bn in F14 (5-year outlay: R6.9bn), with a further R1.4bn earmarked for F15. Accordingly, debt peaked at R5.8bn at FYE14 (FYE13: R4.6bn), elevating net gearing and net debt to EBITDA to highs of 131% and 289%. Net of intercompany loans, the metrics moderate to 108% and 238% respectively (FYE13: 87%; 178%), and are not expected to rise materially in the medium term. Operating cash flows increased by 51% to R1.9bn (supported by enhanced working capital management in the region), while net interest cover is still sound despite having eased to 5.1x (F13: 7.7x). Liquidity is supported by ample unutilised facilities, which registered at R5.6bn at FYE14.
As Nampak Products’ national scale credit ratings are underpinned by Nampak guarantees, migration of the parent’s Issuer ratings would likely trigger an upgrade or downgrade. In addition, significant deterioration in the company’s operational performance and business fundamentals, or a material revision/weakening of the aforementioned linkages with its parent could place downward pressure on the ratings.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Jul/2004)|
|Long term: n.a; Short term: A1(ZA)|
|Last rating (Apr/2014)|
|Long term: A(ZA); Short term: A1(ZA)|
|Sector Head: Corporate ratings|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Corporate Entities, updated February 2015
Nampak Limited rating reports, March 2015
Nampak Products Limited rating reports, 2004-2014
RATING LIMITATIONS AND DISCLAIMERS
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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.|
|Interest Cover||Interest cover is a measure of a company’s interest payments relative to its profits. It is calculated by dividing a company’s operating profit by its interest payments for a given period.|
|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 Cash Flow||A company’s net cash position over a given period, i.e. money received from customers minus payments to suppliers and staff, administration expenses, interest payments and taxes.|
|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.|
|Pari Passu||Securities issued with a pari passu clause have rights and privileges that are equivalent to those of existing securities of the same class. Pari passu means ‘with equal step’ in Latin.|
|Working Capital||Working capital usually refers to net working capital and is the resource that a company uses to finance day-to-day operations. It is calculated by deducting current liabilities from current assets.|
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.
Nampak Products Limited and its parent Nampak Limited 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 Nampak Products Limited with no contestation of the rating. The information received from Nampak Products Limited and other reliable third parties to accord the credit rating included the 2014 audited annual financial statements (plus four years of comparative numbers), corporate governance and enterprise risk framework, capital management policy, regulatory framework and a breakdown of facilities available (including related counterparties).
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.