Lagos Nigeria, 8 December 2020 — Global Credit Ratings has affirmed the national scale issuer ratings of BBB(NG) and A3(NG) in the long term and short term respectively assigned to TAK Logistics Limited, with the outlook accorded as Stable. The ratings are valid until July 2021.
Global Credit Ratings (“GCR”) has accorded the above credit ratings to TAK Logistics Limited (“TAKL” or “the Company”) based on the following key criteria:
The ratings reflect TAKL’s captive market within the Nigerian agricultural value-chain, being a member of a broader TAK Agro Group, a diversified (albeit non-consolidated) agro-business group.
FY19 revenue was significantly constrained by the reduced activities of the Presidential Fertilizer Initiative programme. In addition, revenue fell well below initial forecast due to the delivery of trucks, upon which growth forecasts were premised. Contrary to plans, TAKL’s bond issuance was concluded in November 2019, thereby delaying the Company’s ability to acquire the trucks. Thereafter, COVID-19 pandemic restrictions further delayed the delivery of the trucks. To date, around 108 (of a total of 250 planned) trucks have now been delivered, with about 100 of these now assembled and released for operation.
Earnings have picked up in 1H FY20 following renewal of contract with Nigerian Sovereign Investment Authority, as well as the conclusion of a contract with the Central Bank of Nigeria under the Anchor Borrowers’ Programme. Combined with the utilisation of the initial trucks, 1H FY20 revenue performance is largely in line with the revised projection, suggesting full year budget is attainable.
The slowdown in logistic activity and relative increase in direct costs weakened the gross margin in FY19. This filtered through to EBITDA margin, which was further impacted by higher directors and professional fees. However, the robust earnings, together with efficient cost containment measures in 1H FY20, saw the EBITDA margin widen to 60% (FY19: 52%). GCR believes this ratio can be sustained, supported by the ongoing introduction of the internal truck fleet. This would result in a significant increase in earnings.
TAKL funded operations internally until the issuance of its N15bn bond issuance in FY19 (TAK Agro Plc N15bn Bond). The issue saw net debt to EBITDA spike to 14.7x at FY19 from a previously ungeared position, but reduced to 4.9x at 1H FY20 to be more reflective of the true position of TAKL. As earnings will be supported by the availability of the full fleet of trucks ratio for FY20 and into FY21, GCR project that the actual net debt to EBITDA ratio will moderate to around 2.5x, which is considered moderate for the business.
TAKL’s liquidity assessment is considered weak, given its low cash balance, which does not cover short term debt redemptions. Moreover, GCR negatively views the lack of committed banking facilities to meet unforeseen costs, or uncovered debt redemption. These concerns were evident in FY19 where substantial working capital pressure arose from the requirement to fund the bond programme’s issue sinking fund account ahead of the initial scheduled repayment. Such pressure should reduce if the improved earnings are sustained.
Critical to a rating upgrade is the renewed and newly established contracts, as well as timely delivery of the full trucks. This should translate to a sustained earnings growth and sufficient debt serviceability going forward. Conversely, a further delay in delivery of trucks could constraint earnings and pressured cash flow, interest coverage could deteriorate, thus weakening credit protection metrics.
NATIONAL SCALE RATINGS HISTORY
Initial/Last rating (July 2019)
Rating outlook: Stable
+234 1 9049462
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Global Master Criteria for Rating Corporate Entities, updated February 2018
TAK Logistics Limited Issuer rating report, July 2019
Glossary of Terms/Ratios, February 2018
RATING LIMITATIONS AND DISCLAIMERS
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating process 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 ratings are valid till July 2021.
TAK Logistics Limited participated in the rating process via teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit ratings have been disclosed to TAK Logistics Limited.
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.
The information received from TAK Logistics Limited and other reliable third parties to accord the credit ratings included:
- 2019 audited annual financial statement;
- 6-month management accounts to 30 June 2020;
- Internal and/or external management reports;
- A completed rating questionnaire containing additional information on TAK Group and its subsidiaries; and
- Industry comparative data and regulatory framework and a breakdown of facilities available and related counterparties