GCR Affirms Fidson Healthcare Plc’s Issuer Rating of BBB(NG); Outlook Stable.

06 Jul 2017 In Rating Notifications

GCR Affirms Fidson Healthcare Plc’s Issuer Rating of BBB(NG); Outlook Stable.

Lagos Nigeria, 05 July 2017 — Global Credit Ratings has affirmed the national scale Issuer ratings assigned to Fidson Healthcare Plc of BBB(NG) and A3(NG) in the long term and short term respectively; with the outlook accorded as Stable. Concurrently, GCR has assigned a national scale long term rating of BBB(NG) to the N2bn Secured Fixed Rate Bond. The ratings are valid until June 2018.

RATING RATIONALE

Global Credit Ratings (“GCR”) has accorded the above credit ratings to Fidson Healthcare Plc (“Fidson” or “the Company”) based on the following key criteria:

Fidson remains one of the key players in the Nigerian pharmaceutical sector, with an estimated market share of 6%. The business is enhanced by a strong marketing base and good distribution network, as well as strong relationships and synergies with various local and international suppliers, which should guarantee a sustainable supply of raw materials and consumables.

The Company experienced significant rise in production costs in 2016, on the back of pressure on the procurement process, due to several factors, including the devaluation of the Naira and protracted foreign exchange shortages. In addition, there was production downtime between March and May 2016, as equipment from the old factories was relocated to the newly completed Biotech plant. Overall, revenue fell by 6.8% to N7.7bn in FY16. Given the relative stability in foreign currency supply since February 2017 and the government support for locally produced medicines, Fidson reported a 79% annualised increase in revenue to N3.4bn in 1Q 2017, indicating relatively sound performance against the FY17 budget.

Although the gross margin remained unchanged at 53% in FY16, rising energy costs, as well as elevated selling and distribution expenses continue to impact EBITDA and operating margins. Input costs are expected to remain high in the current year, but economies of scale should see margins improve. Net interest coverage weakened to 1.9x (FY15: 2.2x) in FY16, but improved to 2.1x in 1Q FY17, supported by stronger earnings. The resilience of the margin going forward is contingent upon earnings stability, and will continued to be monitored closely by GCR.

Note is taken of Fidson’s long standing banking relationships, which have allowed for a steady source of funding and favourable terms in the challenging operating environment. Gross debt reduced to N4.4bn at FY16 (FY15: N4.6bn) as Fidson settled certain maturing term facilities. Accordingly, gross and net gearing were reduced to 68% and 62% respectively (FY15: 74%; 72%). However, gross and net debt to EBITDA rose to 302% and 279% at FY16, due to the curtailed profitability during the year. The debt profile has improved, with long term debt accounting for 55% of the interest-bearing obligations at FY16 (FY15: 60%). While Fidson is planning to raise additional debt and/or equity funding to support production capacity, the expected increase in production volumes from the new facilities should see gearing metrics decline by FY17.

Apart from FY13, Fidson reported working capital releases in all the years under review. The significant release recorded in FY16 was largely driven by trade receivables, which followed rigorous credit control measures and increased recovery efforts.

Bureaucratic delays on the part of the Lands Registry and other government agencies have prolonged the security perfection process for the N2bn fixed rate bond. Accordingly, GCR will only consider any additional rating uplift provided by the security package once the security is perfected in full.

Upward rating movement is presently limited by the tough operating environment which has resulted in curtailed performance. However, upward pressure would arise from the attainment of targets over the medium term, and in particular, a significant reduction in debt. Negative rating action could emanate from sustained decline in earnings profile, which could lead to lower than anticipated debt service metrics and deterioration in all other credit protection metrics.

NATIONAL SCALE RATINGS HISTORY

Initial rating (January 2014)
Issuer long-term: BBB(NG)
Issuer short-term: A3(NG)
Rating outlook:  Stable


Last rating (June 2016)
Issuer long-term: BBB(NG)
Issuer short-term: A3(NG)
Rating outlook:  Stable
N2bn Secured Fixed Rate Bond: BBB(NG)
Rating outlook: Stable

ANALYTICAL CONTACTS

Primary Analyst
Femi Atere
Credit Analyst
.(JavaScript must be enabled to view this email address)

Committee Chairperson
Dave King
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for Rating Corporate Entities, updated February 2017
Fidson rating reports (2014-2016)
Glossary of Terms/Ratios, February 2017

RATING LIMITATIONS AND DISCLAIMERS

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.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATINGS-SCALES-DEFINITIONS. 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 AT WWW.GLOBALRATINGS.COM.NG

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 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; and d.) the ratings expire in June 2018.

Fidson Healthcare Plc 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 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 credit ratings above were disclosed to Fidson Healthcare Plc., with no contestation of/changes to the ratings.

The information received from Fidson and other reliable third parties to accord the credit rating included:
- 2016 audited annual financial statements, and four years of comparative audited annual financial statements;
- Unaudited management accounts to March 2017;
- Projections (operating and capital) for the year 2017;
- Industry comparative data and regulatory framework and a breakdown of facilities available and related counterparties;
- Information specific to the rated entity and/or industry.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATINGS-SCALES-DEFINITIONS. 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.

 

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.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, RATING SCALES AND DEFINITIONS ARE AVAILABLE ON GCR’S PUBLIC WEB SITE AT HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. 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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