GCR affirms Nigeria Aviation Handling Company Plc’s rating of A-(NG); Outlook Stable

01 Dec 2015 In Rating Notifications

GCR affirms Nigeria Aviation Handling Company Plc’s rating of A-(NG); Outlook Stable

Lagos, 30 November 2015—Global Credit Ratings has affirmed the long term and short term national scale Issuer ratings assigned to Nigerian Aviation Handling Company Plc of A-(NG) and A2(NG) respectively; with the outlook accorded as Stable. Concurrently, GCR has affirmed each of the Senior Unsecured Series 1 and Series 2 Bond ratings at A-(NG), with a Stable outlook.  The rating(s) are valid until September 2016.

RATING RATIONALE

Global Credit Ratings has accorded the above credit rating(s) on Nigerian Aviation Handling Company Plc (“NAHCO” or “Nahco aviance” or “the Group”) based on the following key criteria:

Nahco aviance maintains a leading position in the domestic aviation and cargo handling sectors, servicing more than 35 passenger and cargo carriers across eight Nigerian airports. Operations are supported by a well established brand, substantial fixed infrastructure, wide network of custom bonded warehouses and membership of international aviation bodies (including safety certifications). In 2014, NAHCO became the first ground handler in Nigeria to receive the Regulated Agent Third Country Validation certification (Ra3 validation), in compliance with the European Union regulatory requirements. These affiliations enhance the Group’s corporate image and clientele base, and are therefore positively viewed.

The Group achieved a CAGR in revenue of 6% over the five-year review period, although turnover registered at a flat N8.1bn in F14. This was mainly attributed to security issues and the Ebola crisis which sharply elevated international flight cancellations, whilst cargo volumes were constrained by a three-week disruption and the more subdued economic environment. However, increased cargo handling rates supported 5% year-on-year (“YoY”) growth in turnover to N6.3bn over the nine month period to September 2015 (“3Q F15”). The industry expects further recovery in 4Q 2015, due to the seasonal increase in cargo and passenger traffic.

Erratic power supply and other infrastructural challenges, as well as inflationary pressures from a weaker Naira continue to exert cost pressure. As such, the operating margin declined from 26% in F10 to 11.2% in F13. An uptick to 13.9% was achieved in F14, on the back of initiatives to enhance efficiency and curb cost overruns. This saw the operating income improved to N1.1bn in F14 (F13: N966m). Notwithstanding a minor moderation in the year to date margin to 13.6%, continued cost rigour is expected to sustain margins around the levels achieved in F14 and 3Q F15.

Total debt registered at N4.2bn at 3Q F15, having remained flat since the Series 2 bond issuance in December 2013. Since the spike at FYE13, gross gearing and total debt to EBITDA have thus been fairly stable, closing 3Q F15 at 71% and 203% respectively (FYE14: 74%; 208%). Since the temporary dip in the net position at FYE13, on the back of Series 2 proceeds, net gearing and net debt to EBITDA stabilised at a respective 26% and 208% at FYE14 (3Q F15: 27%; 203%), noticeably outperforming forecasts.  The material reduction in gearing anticipated when the N2.15bn Series 1 bond matures in September 2016 is expected to be maintained in the medium term. Debt serviceability has been sound, with operating cash flows covering total debt 47% in F14 (F13: 38%) and by a higher 59% in 3Q F15 (F15 budget: 52%). Net interest cover improved to 4.1x in F14 (F13: 3.4x), and further to 5.3x in 3Q F15; with these traction expected to be sustained going forward.

GCR notes the cash collection mechanism through the Debt Service Reserve Account (“DSRA”), which offers some short term protection to bondholders. However, its features are not sufficient to warrant a notching up from the corporate rating. As they relate to senior unsecured debt, the bond ratings are inherently linked to the NAHCO’s financial performance. Any change in the Issuer rating will likely impact the bond ratings.

Positive rating action could emanate from attainment of revenue forecasts, combined with effective cost management which should result in improved earnings margins and debt service metrics. In addition, successfully bedding down new capacity and profitably establishing the free trade zone subsidiary would be positively viewed. Conversely, increased pricing pressures amidst rising operating costs could adversely affect earnings and result in liquidity strain, placing downward pressure on the ratings.

 

NATIONAL SCALE RATINGS HISTORY

Initial rating (May 2011)

Issuer long term: A-(NG); Issuer short term: A2(NG);

Outlook: Stable

Series 1 Fixed Rate Bond: A-(NG)

Outlook: Stable

Series 2 Fixed Rate Bond: A-(NG)  (September 2013)

Outlook: Stable

 

Last rating (October 2014)

Issuer long term: A-(NG); Issuer short term: A2(NG);

Outlook: Stable

Series 1 Fixed Rate Bond: A-(NG)

Outlook: Stable

Series 2 Fixed Rate Bond: A-(NG)

Outlook: Stable

 

ANALYTICAL CONTACTS

Primary Analyst

Adekemi Adebambo

Senior Credit Analyst

Lagos

+234 1 462 2545

.(JavaScript must be enabled to view this email address)

Committee Chairperson

Dave King

.(JavaScript must be enabled to view this email address)

 

APPLICABLE METHODOLOGIES AND RELATED RESEARCH

Global Master Criteria for Rating Corporate Entities, February 2015

Nigerian Aviation Handling Company Rating Reports, 2011 - 2014

Glossary of terms (February 2015)

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.COM.NG/UNDERSTANDING-RATINGS. IN ADDITION, GCR’S RATING SCALES AND DEFINITIONS ARE ALSO AVAILABLE FOR DOWNLOAD AT THE FOLLOWING LINK:HTTP://GLOBALRATINGS.COM.NG/RATINGS-INFO/RATING-SCALES-DEFINITIONS. 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.COM.NG

SALIENT POINTS 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 expire in September 2016.

Nigerian Aviation Handling Company 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 NAHCO with no contestation of the rating.

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

- the 2014 audited annual financial statements (plus four years of comparative numbers),

- budgeted financial statements for the years 2013 to 2017,

- unaudited management accounts to September 2015,

- insurance policy document

- a completed rating questionnaire containing information on NAHCO

- corporate governance and enterprise risk framework

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.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.

CREDIT RATINGS ISSUED AND RESEARCH PUBLICATIONS PUBLISHED BY GCR, ARE GCR’S OPINIONS, AS AT THE DATE OF ISSUE OR PUBLICATION THEREOF, OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. GCR DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: FRAUD, MARKET LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND GCR’S OPINIONS INCLUDED IN GCR’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS AND GCR’S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND GCR’S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL OR HOLD PARTICULAR SECURITIES. NEITHER GCR’S CREDIT RATINGS, NOR ITS PUBLICATIONS, COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. GCR ISSUES ITS CREDIT RATINGS AND PUBLISHES GCR’S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING OR SALE.

Copyright © 2013 Global Credit Rating Company Limited. THE INFORMATION CONTAINED HEREIN MAY NOT BE COPIED OR OTHERWISE REPRODUCED OR DISCLOSED , IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT GCR’S PRIOR WRITTEN CONSENT. The ratings were solicited by, or on behalf of, the issuer of the instrument in respect of which the rating is issued, and GCR has been compensated for the provision of the ratings. Information sources used to prepare the ratings are set out in each credit rating report and/or rating notification and include the following: parties involved in the ratings and public information. All information used to prepare the ratings is obtained by GCR from sources reasonably believed by it to be accurate and reliable. Although GCR will at all times use its best efforts and practices to ensure that the information it relies on is accurate at the time, GCR does not provide any warranty in respect of, nor is it otherwise responsible for, the accurateness of such information. GCR adopts all reasonable measures to ensure that the information it uses in assigning a credit rating is of sufficient quality and that such information is obtained from sources that GCR, acting reasonably, considers to be reliable, including, when appropriate, independent third-party sources. However, GCR cannot in every instance independently verify or validate information received in the rating process. Under no circumstances shall GCR have any liability to any person or entity for (a) any loss or damage suffered by such person or entity caused by, resulting from, or relating to, any error made by GCR, whether negligently (including gross negligence) or otherwise, or other circumstance or contingency outside the control of GCR or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits) suffered by such person or entity, as a result of the use of or inability to use any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. Each user of the information contained herein must make its own study and evaluation of each security it may consider purchasing, holding or selling. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY GCR IN ANY FORM OR MANNER WHATSOEVER.

Click on logo below to view more information about Global Credit Ratings Africa

Recent Rating Reports

10 Oct 2017: Rand Merchant Bank Nigeria Limited

10 Oct 2017: Leadway Assurance Company Limited

10 Oct 2017: North South Power Company Limited

10 Oct 2017: First Bank of Nigeria Limited

10 Oct 2017: Nigeria Mortgage Refinance Company Plc

10 Oct 2017: Dangote Cement Plc

10 Oct 2017: Fortis Microfinance Bank Plc

10 Oct 2017: Flour Mills of Nigeria

10 Oct 2017: Sterling Investment Management SPV PLC

10 Oct 2017: FSDH Merchant Bank Limited

Purchase Rating Reports

Parties interested in purchasing individual or sectoral rating reports and/or bulletins from Global Credit Rating Company Limited are kindly requested to contact us on the following telephone numbers or email address.

Telephone: (+2341) 462 2648, 460 5001, 0805 615 8393, 0803 352 871

Email: bisi@warltd.com

Email: tunde@globalratings.net

Recent Bulletin Releases
Rating Sectors
Credit Ratings

For a full list of Credit Ratings performed by Global Credit Ratings Company Limited please click here