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

27 Jun 2016 In Rating Notifications

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

Lagos Nigeria, 24 June 2016 — 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 May 2017.

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:

The ratings of Fidson reflect its current position as the 3rd largest player in the Nigerian pharmaceutical industry, supported by an enhanced production capacity, strong marketing base and good distribution network, as well as strong relationships with international suppliers and government agencies. The change in outlook from ‘Watch’ to ‘Stable’ reflects Fidson’s solid earnings performance despite an increasingly challenging operating environment.

The Company generated consistent growth in revenue between FY12 and FY14, on the back of rising production and volumes. However, the position reversed in FY15, with a 15.5% decline in revenue to N8.2bn (representing 78% of FY15 budget). This was driven by the challenging operating environment and prevalent foreign currency shortage which constrained supply and production. Also, Fidson witnessed low demand in the first half of 2015 due to the uncertainty caused by elections pressure.

While gross margin declined to 53% (FY14: 56%) due to the input cost pressure, lower operating expenses saw the EBITDA and operating margin expand to 22% and 19% (FY14: 18% and 15%) respectively. Of concern is the net interest coverage ratio which declined to 2.2x in FY15 (FY14: 2.6x, FY13: 3.4x), as the interest charge rose to N678m (FY14: N550m) and operating income reduced. Albeit cognisance is taken of slow economic activity in the first quarter of the year, the results for 1Q FY16 suggest that the Company will fall short of its full year forecasts.

Gross debt doubled to N4.6bn at FYE15 from N2.2bn at FYE11. The higher debt burden arose from the issue of the N2bn secured fixed rate bond to fund the construction of the Biotech plant and rising working capital requirements, as well as the N166.9m in debt taken-up after the liquidation of Fidson Products Limited, Fidson’s associate company. Nevertheless, the debt profile is considered to be adequately matched with assets, with the long term debt accounting for 60% of the gross debt at FYE15. Shareholders’ equity rose by 10% to N6.3bn at FYE15, underpinned by higher earnings retention. The higher equity, combined with the relatively lower debt supported a reduction in gross gearing to 74% at FYE15, from 84% at FYE14 (budget: 83%). Similarly, the gross and net to EBITDA reduced to 262% and 255% at FYE15 (FYE14: 285%, 273%) respectively.

Bureaucratic delays on the part of the Lands Registry and other government agencies have prevented the perfection of the security documents for the N2bn bond. While note is taken of the progress made with regard to the security perfection process, GCR can only reconsider an additional rating uplift provided by the security package once the security is perfected in full. Based on the most recent asset valuation (January 2016), GCR’s calculations suggest that recovery prospects can be expected to be ‘Excellent’.

An upward rating movement is presently limited by the tough operating environment which has resulted in a moderated performance across the board. However, a positive rating would be premised on the attainment of targets over the medium term, and in particular, a significant reduction in debt. Downward pressure could emanate from sustained decline in earnings profile, which could lead to lower than anticipated interest coverage 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
Rating outlook:  Stable

Last rating (September 2015)
Issuer long-term: BBB(NG)
Issuer short-term: A3
Rating outlook:  Watch


ANALYTICAL CONTACTS

Primary Analyst
Femi Atere
Credit Analyst
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Committee Chairperson
Dave King
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APPLICABLE METHODOLOGIES AND RELATED RESEARCH

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


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 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 May 2017.

 

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 credit rating/s has been disclosed to Fidson Healthcare Plc with no contestation of the ratings.

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 Fidson Healthcare Plc and other reliable third parties to accord the credit rating included:
- 2015 audited annual financial statements, and four years comparative audited annual financial statements;
- Unaudited management accounts to March 2016;
- Projections (operating and capital) for the years 2016 to 2020;
- 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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