Fitch Ratings has affirmed the 'BBB' foreign currency and local
currency Issuer Default Ratings (IDRs) of Alicorp S.A.A. (Alicorp)
as well as the 'BBB' rating assigned to its USD450 million senior
unsecured notes.
The Rating Outlook is revised to Negative from Stable.
KEY RATING DRIVERS
Higher Leverage Drives Outlook
Leverage is higher than originally forecast due to higher than
expected capex and a deteriorating consumer environment in
Argentina. Alicorp's net leverage ratio was 3.7x as of year-end
2014. Short-term debt increased in order to finance higher
inventories and acquisitions. Following the acquisitions of
Pastificio Santa Amalia and Industrias Teal in 2013, Alicorp
acquired Peruvian companies Global Alimentos and Molinos Saracolca
for USD108 million in 2014. Total debt as of Dec. 31, 2014
increased to PEN2,699 million (USD895 million), of which 65% was
long-term.
Lower Margins
Fitch expects Alicorp's margins to recover to around 12% in
2015. Alicorp generated PEN6,284 million (USD2 billion) of revenues
in 2014, an 8% increase in local currency when compared to 2013 due
to a 6% increase in volumes. Higher administrative and commercial
expenses related to acquisitions and the launching and re-launching
of new products, as well as losses in Argentina, contributed to a
slightly lower EBITDA margin of 11% in 2014 (excluding Brazilian
tax benefits from 2013).
Deleveraging Expected This Year
Fitch expects Alicorp to reduce its net debt to EBITDA ratio to
around 3.0x by the end of 2015. This level is still high for the
rating category. Restricted dividend payments are expected in 2015
and instead use the cash to pay down its debt. Fitch also expects
EBITDA margins to improve following the expansion of Alicorp's
shrimp feed plant in Ecuador and a reduction of operations in
Argentina.
Commodity and Currency Risk Exposure
Commodities, such as wheat and soybean, are around 60% of
variable cost. Alicorp typically hedges up to 50% of its inventory
and projected cash flow net exposure to foreign currency on a
rolling basis. After the derivatives hedge, the currency mix of
total debt was as follows: 57% Peruvian nuevos soles, 26% U.S.
dollars, 6% Brazilian reals, and 11% Argentine pesos as of December
2014. Alicorp hedged USD275 million and refinanced USD150 million
of its USD450 million notes with local issuances in early 2015. The
percentage of Peruvian Nuevo soles is now 73% and the remaining
balance is split among U.S. dollars, Brazilian reals and Argentine
pesos. The majority of liabilities are fixed-rate, either direct or
through derivative transactions.
Strong Market Position
Alicorp's ratings reflect the company's strong market position
in the Peruvian consumer products industry due to its leading
brands, broad product portfolio and extensive distribution network.
These factors combine to give the company strong competitive
advantages and present formidable barriers to entry. Alicorp is
well positioned to benefit from a growing middle class with
increasing purchasing power and access to consumer credit. Fitch
expects economic growth to rebound in 2015 and 2016, averaging
5.6%.
Diversified Product Mix
Branded consumer products accounted for 57% of 2014 consolidated
revenues, while industrial flour and edible oils represented 23%,
and animal nutrition the remaining 20%. Alicorp is further
diversifying its product base through its acquisitions and by
launching new products. In 2014, revenues in the consumer goods
segment increased 2%, B2B branded products remained flat (+0.5%),
and animal nutrition grew 42% due to increasing demand in Ecuador
and Chile.
Strong Equity Holder
While Alicorp's credit quality does not benefit from explicit
guarantees, Fitch considers it positive that the company is part of
Grupo Romero, one of the largest business groups in Peru. Grupo
Romero has a presence regionally (Colombia, Ecuador and Bolivia)
and across 20 different countries.
KEY ASSUMPTIONS
Fitch's key assumptions within the rating case for the issuer
include:
--Lower revenue growth - around 4% from 2015 onward;
--EBITDA margin recovery - around 12%;
--Capex at around USD90 million-USD100 million per year;
--Restricted dividends for 2015 and around USD30 million
onward;
--Cash balance at around USD30 million-USD40 million;
--Net adjusted debt-to-EBITDA trending toward 2.5x and
below;
--No large-scale M&A activity.
RATING SENSITIVITIES
Alicorp has been very active in acquisitions and launching new
products which have progressively increased leverage higher than
Fitch expectations. If the company's acquisition activity continues
with lower margins and large dividend distributions resulting in
net leverage (net debt/EBITDA) above 2.5x, a downgrade could
follow.
A revision of the Outlook back to Stable could result if a
sustained deleverage process is evidenced due to improved margins
and cash flow from operations.
Additional information is available at
'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (May 2014).
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and
Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=980673
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Fitch RatingsPrimary AnalystCristina MaderoAssociate
Director+1-312-368-2080Fitch Ratings, Inc.70 West Madison
StreetChicago, IL 60602orSecondary AnalystJosseline
JenssenDirector+51-999-108-046orCommittee ChairpersonJoe Bormann,
CFAManaging Director+1-312-368-3349orMedia Relations:Elizabeth
Fogerty, New York, +1 212-908-0526Email:
elizabeth.fogerty@fitchratings.com