Johannesburg, 19 Dec 2013 — Global Credit Ratings has today affirmed the long term national scale and short term national scale issuer ratings assigned to SIFCA Group of A(CI) and A1(CI) respectively; with the outlook accorded as Stable. The rating(s) are valid until 12/2014.
Global Credit Ratings has accorded the above credit rating(s) on SIFCA Group based on the following key criteria:
SIFCA Group (“Sifca”) is a leading West African agronomic company, with its strength in rubber production (and sugar cultivation to a lesser extent) now augmented by a growing position in palm cultivation, processing and the manufacture of associated finished products. While the majority of the group’s operations are contained within the Ivory Coast, recent years have seen active diversification of the rubber and palm oil businesses into neighbouring countries. Sifca reports a strong competitive advantage in that a large proportion of its raw material is sourced from its own plantations, albeit that it is still reliant on raw material sourced from outgrower schemes (rendering it susceptible to the challenges typically associated with such arrangements such as quality issues and side marketing). Another key competitive advantage is the strategic minority shareholders in the group and its underlying subsidiaries, with these partners being multinational players who are able to provide technical assistance and global best practices.
While stability in the Ivory Coast (post the 2011 political crisis) has driven strong economic growth and much improved capacity utilisation by the group, the introduction of new domestic taxes on aspects of the agriculture industry have materially impacted margins (particularly with respect to the rubber business). Subdued commodity prices and a generally strong FCFA exchange rate against the US$ (in which most commodities are priced) have further tempered profitability. To address these latter issues, managerial focus has been placed on capturing greater value by expanding operations to include the manufacture of consumer products.
Sifca’s operating performance has been sound over the review period, with strong increases reported in terms of actual production. However, the abovementioned issues have constrained revenue growth and resulted in subdued operating profits in F12 and 1H F13. Nonetheless, with debt and gearing relatively moderate, debt serviceability has been strong. Gearing measures have reduced considerably since FYE09, with net debt to equity falling from 40% at FYE09 to 17% at 1H F13 and net debt to EBITDA concurrently falling from 149% to 40%. Liquidity too has remained confortable as a result of strong operating cash flows and sizeable cash balances having been maintained.
Looking ahead, Sifca is moving into a consolidation phase, whereby capex is expected to reduce and focus is placed on capacity utilisation and efficiency improvements. Should lower capex levels be maintained and the improvement in efficiency and capacity utilisation be reported (and translate to improved eanrings) this would improve credit risk measures and could drive an upward rating movement in the longer term. In contrast, further large and unexpected capex could drive increased borrowings and a deterioration in credit protection metrics, which could adversely impact on the ratings. Other negative rating movement factors include strong negative developments in terms of realised palm oil and/or rubber prices, as well as adverse socio-political developments in the Ivory Coast.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Nov/2006)|
|Long term: A-(CI); Short term: A2(CI)|
|Last rating (Nov/2012)|
|Long term: A(CI); Short term: A1(CI)|
|+27 11 784 1771|
|Sector Head: Corporates|
|+27 11 784 1771|
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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.
SIFCA Group 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 SIFCA Group with no contestation of the rating.
The information received from SIFCA Group and other reliable third parties to accord the credit rating included the 2012 audited annual financial statements (plus four years of comparative numbers), internal and/or external management reports, full year budgeted financial statements, 1H 2013 management accounts, 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.
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.