Johannesburg, 24 Jul 2013 — Global Credit Ratings has today upgraded the long term national scale and short term national scale issuer ratings of Lafarge WAPCO to A+(NG) and A1+(NG) respectively; with the outlook accorded as Stable. In conjunction the rating of the Lafarge WAPCO Senior Secured Bond has been upgraded to AA(NG) with a Stable outlook. The ratings expires in 07/2014.
Global Credit Ratings has accorded the above credit rating(s) on Lafarge WAPCO based on the following key criteria:
Lafarge WAPCO has established a leading position in the Nigerian cement industry, underpinned by five decades of operations and technical support from its parent, Lafarge S.A. This position has been strengthened by the recent expansion project, which saw production capacity double to 4.5m tons per annum.
Revenue jumped 41% to a review period high of N88bn in F12 as cement volumes increased from 2.1m tonnes in F11 to 2.9m tonnes, following production ramp up at the new plant. Gross profit rose to N32.4bn in F12, at a much higher gross margin of 36.8% , as the Group attained self-sufficiency in clinker production. Added to this have been improved operating efficiencies, economies of scale and cost saving initiatives. Thus, operating income doubled to N26bn in F12, surpassing budget by 34%. Similarly, the operating margin improved to 30% in F12 (F11: 21%). As at FYE12, Lafarge WAPCO had exceeded its medium term budget targets.
Although a working capital absorption was reported, this was anticipated and in line with growth requirements. Nevertheless, the Group still benefitted from strong operating cash flows, which facilitated the repayment of debt ahead of schedule. This saw debt decline to N37bn at FYE12, from N53.7bn previously. Credit protection metrics all improved, with net gearing falling below 45% at FYE12 and 1Q F13, while net debt to EBITDA registered below 100% in both periods. Similarly, interest coverage increased to 5.5x in F12 (F11: 4.6x)
In light of the additional recoveries likely to bondholders offered by the security package, GCR considers a two-notch upgrade to still be appropriate to the Series 1 Bond.
A ramp up in production volumes and sustained operating efficiencies should lead to improved earnings growth and profitability margins. A reduction in debt and gearing metrics will further strengthen the Group’s balance sheet. However, exogenous factors that may lead to decline in demand and could adversely affect sales and profitability. A significant rise in gearing and adverse credit protection metrics would also lead to a downward review of the credit ratings.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Aug/2010)|
|Long term: A(NG)|
|Senior Secured Bond AA-(NG)|
|Last rating (Dec/2012)|
|Long term: A(NG); Short term: A1(NG)|
|Senior Secured Bond AA-(NG)|
|Outlook: Positive outlook|
|+23 41 462-2545|
|Sector Head: Corporates|
|Johannesburg, South Africa|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
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.
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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.
Lafarge WAPCO 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 Lafarge WAPCO with no contestation of the rating.
The information received from Lafarge WAPCO and other reliable third parties to accord the credit rating included the latest available audited annual financial statements (plus four years of comparative numbers), internal and/or external management reports, full year budgeted financial statements, most recent year to date management accounts (where necessary), corporate governance and enterprise risk framework, industry comparative data and regulatory framework and a break down of facilities available and related counterparties. In addition, information specific to the rated entity and/or industry was also received.