GCR affirms The SIFCA Group's rating of A(CI); Outlook Stable

30 Jan 2019 In Rating Notifications

GCR affirms The SIFCA Group's rating of A(CI); Outlook Stable

Johannesburg, 30 January 2019—Global Credit Ratings has today affirmed the national scale Issuer ratings assigned to The SIFCA Group of A(CI) and A1(CI) in the long and short term respectively; with the outlook accorded as Stable. The Issuer ratings expire on 30 November 2019.

SUMMARY RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to The SIFCA Group (“SIFCA”) based on the following key criteria:

The ratings incorporate SIFCA’s strong business profile, underpinned by operations that span the product value chain in the ECOWAS region. Strategic partnerships with global corporates secure critical technical and financial support for the group, while ensuring access to key markets for primarily international exports such as rubber.

While its operations span three different crop cycles, SIFCA is exposed to the cyclicality of global commodity prices and vagaries inherent in its exposure to the agriculture sector. The group continues to invest in agro-processing capacity, including development of fast-moving consumer good ranges to reduce the severity of sectoral cyclicality on profitability, although revenue, earnings and free cash flows are expected to remain variable over the rating horizon.

SIFCA achieved a 15% increase in turnover in FY17, while the EBIT margin almost doubled to a five-year high of 10.6%, underpinned by strong volumes, enhanced efficiencies and especially robust 1H 2017 rubber prices in particular, which saw net profit register at a new annual high. 1H FY18, however, saw a reversal, with revenue contracting 18% YoY, while the EBIT margin reduced to 3.1% largely due to weaker rubber and palm oil prices. Cognisance is taken of continued investment in increasing acreage and to rejuvenate ageing plantations to improve productivity, as well as the almost complete rollout of an enterprise resource planning system, which are expected to further improve overall efficiency and sustain sound production margins.

Debt declined 16% to a new low of XOF147.7bn at FY17, registering at XOF155.2bn at 1H FY18. The level of gearing remains moderate, albeit increasing intermittently during crop cycles and to finance capex or to recapitalise certain group subsidiaries. According to management, the sizeable capex programme running from FY18-FY22 is being carried out in phases to mitigate capital risk, with debt drawn for each stage to be repaid before the next commences.

While facilities are sought as required, and SIFCA is in the process of optimising its funding structure, some comfort is taken from well-entrenched relationships with banks and development finance institutions, together with the potential for capital support from major multinational corporate partners as and when required.

Medium term sales volume progression is expected to be supported by burgeoning regional population and per capita income as well as political stability, albeit note is taken of a moderation in global demand. Pressure could also arise from regulatory scrutiny or laxity impacting SIFCA’s regional operations.

Upward rating progression could arise from the sustenance of a strong earnings profile, supported by a relatively stable commodity price cycle and efficiency enhancements derived from capex, both achieved in conjunction with conservative gearing levels. Conversely, unduly elevated debt and gearing to fund capex and/or volatile crop price cycles. Persistent operational losses/erratic cash generation due to exogenous pressures or unforeseen internal challenges could also warrant a downgrade.

 

NATIONAL SCALE RATINGS HISTORY    
     
Initial rating (November 2006)   Last rating (December 2017)
Long term: A-(CI)   Long term: A(CI)
Short term: A2(CI)   Short term: A1(CI)
Rating outlook: Stable   Rating outlook: Stable

 

ANALYTICAL CONTACTS

Primary Analyst   Committee Chairperson
Patricia Zvarayi   Eyal Shevel
Senior Credit Analyst   Sector Head: Corporate and Public Sector Ratings
(011) 784-1771   (011) 784-1771
.(JavaScript must be enabled to view this email address)   .(JavaScript must be enabled to view this email address)

 

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for Rating Corporate Entities, updated February 2018

SIFCA Group rating reports, 2006-17

 

RATING LIMITATIONS AND DISCLAIMERS

ALL GCR’S CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: http://GLOBALRATINGS.NET/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK: http://GLOBALRATINGS.NET/RATINGS-INFO. GCR’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, PUBLICATION TERMS AND CONDITIONS AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE AT http://GLOBALRATINGS.NET.

 

GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S CORPORATES GLOSSARY

Capital The sum of money that is invested to generate proceeds.
Cash Flow The inflow and outflow of cash and cash equivalents. Such flows arise from operating, investing and financing activities.
Commodity Raw materials used in manufacturing industries or in the production of foodstuffs. These include metals, oil, grains and cereals, soft commodities such as sugar, cocoa, coffee and tea, as well as vegetable oils. 
Credit Rating An opinion regarding the creditworthiness of an entity, a security or financial instrument, or an issuer of securities or financial instruments, using an established and defined ranking system of rating categories.
Debt An obligation to repay a sum of money. More specifically, it is funds passed from a creditor to a debtor in exchange for interest and a commitment to repay the principal in full on a specified date or over a specified period.
Downgrade The assignment of a lower credit rating to a corporate or sovereign borrower’s debt by a credit rating agency. Opposite of upgrade.
Exposure Exposure is the amount of risk the holder of an asset or security is faced with as a consequence of holding the security or asset. For a company, its exposure may relate to a particular product class or customer grouping. Exposure may also arise from an overreliance on one source of funding.
Gearing With regard to corporate analysis, gearing (or leverage) refers to the extent to which a company is funded by debt and can be calculated by dividing its debt by shareholders’ funds or by EBITDA.
Long-Term Rating A long-term rating reflects an issuer’s ability to meet its financial obligations over the following three to five-year period, including interest payments and debt redemptions. This encompasses an evaluation of the organisation’s current financial position, as well as how the position may change in the future with regard to meeting longer term financial obligations.
Margin A term whose meaning depends on the context. In the widest sense, it means the difference between two values.
Multinational A company that operates commercially in a number of countries outside of the one wherein it is based. Such companies are often listed on more than one stock exchange or have shares available via depository receipts.
Risk The possibility that an investment or venture will make a loss or not make the returns expected. There are many different types of risk including basis risk, country risk, credit risk, currency risk, economic risk, inflation risk, liquidity risk, market or systemic risk, political risk, settlement risk and translation risk.
Short-Term Rating A short-term rating is an opinion of an issuer’s ability to meet all financial obligations over the upcoming 12 month period, including interest payments and debt redemptions.
Turnover The total value of goods or services sold by a company in a given period. Also known as revenue or sales. Turnover can also refer to the total volume of trades in a market during a given period.

For a detailed glossary of terms, please click here

 

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 ratings were based solely on the merits of the rated entity, security or financial instrument being rated; c.) such ratings were an independent evaluation of the risks and merits of the rated entity, security or financial instrument.

The 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 ratings have been disclosed to The SIFCA Group.

The information received from The SIFCA Group and other reliable third parties to accord the credit rating included:

  • the 2017 financial statements, and full annual report for SIFCA group;
  • four years’ comparative, audited numbers; and
  • group management account extracts for The SIFCA Group for the six months to June 2018.

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.

 

 

 

 

 

ALL GCR CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS, TERMS OF USE OF SUCH RATINGS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS, TERMS OF USE AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://GLOBALRATINGS.NET/UNDERSTANDINGRATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT WWW.GLOBALRATINGS.NET/RATINGSINFORMATION. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. GCR'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE UNDERSTANDING RATINGS SECTION OF THIS SITE.

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