Initial Rating of proposed LKR 2.0 billion

Transcription

1 March 2013 HAYLEYS PLC Corporate Credit Ratings Initial Rating of proposed LKR 2.0 billion Senior, Unsecured, Redeemable Debenture (2013/2018) The newly assigned rating is preliminary, based primarily on information provided by the issuer and its agent, or the rated institution. RAM Ratings does not verify the accuracy or completeness of such material and is not responsible for any errors or omissions, or the results obtained from the use of the same. The preliminary rating is contingent upon final documents conforming to information already received, and the resolution of outstanding matters deemed pertinent by RAM Ratings. Subsequent information may result in the assignment of the final rating that differs from the preliminary rating. RAM Ratings rating is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings.

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3 CREDIT RATING RATIONALE CORPORATE RATINGS MARCH 2013 Analysts: Prashani Illangasekera ACMA, MSc, BA (9411) Nilusha Fonseka BSc (Hons) (9411) Principal Activities: Hand protection, purification, transportation, agriculture, plantations, textiles, construction materials, fibre, consumer, industry solutions, power and energy, leisure and aviation. Corporate Credit Ratings: Long-term: AA- (Reaffirmed) Short-term: P1 (Reaffirmed) Instrument: Proposed LKR 2.0 billion Senior, Unsecured, Redeemable Debentures (2013/2018) Ratings: AA- (Assigned) HAYLEYS PLC Credit Update & Initial Rating Summary RAM Ratings Lanka has reaffirmed Hayleys PLC s ( Hayleys or the Company ) long- and short-term corporate credit ratings at AA- and P1 respectively. Concurrently, we have assigned a long-term issue rating of AA- to the Company s Proposed LKR 2.0 billion Senior, Unsecured, Redeemable Debentures (2013/2018). All long-term ratings carry a stable outlook. Hayleys is a diversified conglomerate with wide ranging business interests in hand protection, purification, transportation, agriculture, plantations, textiles, construction materials, fibre, consumer, industrial solutions, power and energy together with leisure and aviation. (Hayleys, along with its subsidiaries will collectively be referred to as Hayleys Group or the Group ) The ratings reflect the following strengths: Diversified business portfolio The Group has over the years, sought wide diversification of its business interests, both in terms of industry exposure and geographical reach. The diversification has allowed the Group to withstand the adversities affecting a particular industry sector, as weaker showings in one business line can be balanced off by the strong performance in another. Rating Outlook: Stable Coupon Rates: Type A: 14.25% p.a (payable quarterly) Type B: 14.75% p.a (payable quarterly) Type C: 15.0% p.a (payable quarterly) Strong market positions in business lines The Group continues to hold strong market positions in several of its key businesses. In purification, it is the largest producer of coconut shell based activated carbon in the world, with an estimated global market share of around 15%. Meanwhile, in non-medical gloves the Group commands a global market share of around 5%. In the transportation industry, Hayleys Advantis Limited ( Advantis ) is a strong player in the domestic logistics industry. In plantations, the Group is a significant player in the production of tea and rubber. Adequate debt protection metrics The Group s debt protections metrics continue to be adequate and in line with RAM Ratings Lanka s expectations, supported by better performance in its The newly assigned rating is preliminary, based primarily on information provided by the issuer and its agent, or the rated institution. RAM Ratings does not verify the accuracy or completeness of such material and is not responsible for any errors or omissions, or the results obtained from the use of the same. The preliminary rating is contingent upon final documents conforming to information already received, and the resolution of outstanding matters deemed pertinent by RAM Ratings. Subsequent information may result in the assignment of the final rating that differs from the preliminary rating. RAM Ratings rating is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings.

4 Tenure/Maturity dates: Type A: 3 years Type B: 4 years Type C: 5 years Security: Unsecured Last Rating Action: December 2012 key segments of purification, hand protection and transportation. The Group s funds from operations ( FFO ) debt coverage stood at 0.25 times by end-fiscal 2012 (fiscal 2011: 0.27 times). Debt protection metrics showed a pronounced improvement in 1H fiscal 2013, with FFO debt coverage improving to 0.37 times supported by the overall improvements in performance. The ratings factor in our expectations that the Group s FFO debt coverage levels will remain around 0.30 times in fiscal The preceding strengths are however moderated by the following weaknesses; High debt burden and tight liquidity The Group s debt burden continues to be relatively high, compared to the rated portfolio; borrowings had increased in recent years as the Group pursued aggressive debt funded expansions. In fiscal 2012, the Group s debt levels were in line with our expectations with a gearing ratio (Total debt/total equity) of 0.78 times by end-fiscal Hayleys total debt increased by 30% y-o-y, primarily to fund capacity expansion in its key business lines, the refurbishment of the Group s five star city hotel and higher working capital requirements; gearing increased slightly to 0.80 times by 1H fiscal Meanwhile, we note that debt levels at Hayleys PLC level had also been on the rise, particularly during 1H fiscal 2013 with its gearing ratio increasing to 0.86 times (end-fy Mar 2011: 0.53 times). However, our concerns are somewhat mitigated given that the Company has control over the dividend policies of its subsidiaries, thus enabling dividend upstreaming when required. On the other hand, the Group s liquidity position continued to be tight given its heavy reliance on short-term borrowings (which includes trade facilities) and relatively low cash reserves. Exposure to volatilities in commodity prices The Group s key businesses are sensitive to fluctuations in commodity prices which in turn are governed by a range of factors including global supply, demand and weather conditions. For instance, the performance of the Group s plantation sector is directly correlated to the prices fetched by tea and rubber. Meanwhile, rubber and coconut are key inputs to the Group s hand protection and activated carbon businesses respectively; thus volatilities in the prices of these raw materials directly affect the Group s margins as has been demonstrated in the past. Exposure to foreign exchange ( forex ) risk Hayleys is vulnerable to foreign exchange rates given its reliance on exports. As around 65% of the Group s sales are denominated in foreign currency while their costs are largely rupee denominated, any adverse movements in exchange rate would have a significant impact on profitability. That said, the Group s Central Treasury provides consultation to Group companies on minimising forex risk, thus mitigating this risk to a certain extent. Hayleys PLC 2

5 Corporate Information Hayleys PLC Date of Incorporation: 1953 Commencement of Business: Major Shareholders as at 30 September 2012: 1878 KDD Perera SBL/KDD Perera Trustees of DS Jayasundera Trust Hayleys PLC-Employees Share Trust Lanka Orix Leasing Company PLC 41.28% 3.87% 11.60% 9.14% 3.25% Directors: Auditor: Listing: Key Management (General Management Committee members) AM Pandithage KDD Perera MR Zaheed JAG Anandarajah WDNH Perera SC Ganegoda HSR Kariyawasan Dr H Cabral, PC Dr KIM Ranasoma MDS Goonathilleke RP Pathirana LT Samarawickrama KPMG Main Board of Colombo Stock Exchange AM Pandithage MR Zaheed JAG Anandarajah SC Ganegoda HSR Kariyawasa Dr KIM Ranasoma LT Samarawickrama MMM De Silva HCS Mendis GK Seneviratne SP Dissanayake R Waidyaratne J Wijesinghe GMP De Silva Dr A Sivagananathan Dr E Fernando LDEA De Silva Chairman/ Chief Executive Deputy Chairman Executive Executive Non-Executive Executive Executive Independent/Non-Executive Executive Independent/Non-Executive Independent/ Non-Executive Executive Listed Subsidiaries: Haycarb PLC Hayleys Fibre PLC Dipped Products PLC Hayleys MGT Knitting Mills PLC Hotel Services (Ceylon) PLC Amaya Leisure PLC Talawakelle Plantations PLC Kelani Valley Plantations PLC 67.70% 65.00% 54.90% 82.80% 49.90% 63.50% 27.40% 39.10% Capital History: Year Remarks Amount (LKR million) Brought forward Cumulative Total (LKR million) 1, , Hayleys PLC 3

6 FINANCIAL SUMMARY Hayleys PLC Group Unaudited STATEMENT OF FINANCIAL POSITION (LKR million) 31-Mar Mar Mar Mar Sep-12 Property, Plant & Equipment 13, , , , , Investments in Associates/Jointly-Controlled Entities 2, Deferred T ax Assets Other Investments & Non-Current Assets 1, , , Goodwill & Intangible Assets , , , , Total Non-Current Assets 17, , , , , Inventory 5, , , , , Trade Receivables 4, , , , , Other Current Assets 5, , , , Amounts Due from Holding/Related Companies & Directors Amounts Due from Associates/Jointly-Controlled Entities Cash & Bank Balances , , , , Money Market Instruments Total Current Assets 16, , , , , Total Assets 33, , , , , Equity Share Capital 1, , , , , Equity-Like Hybrid Capital Reserves 8, , , , , Retained Profits/(Accumulated Losses) 2, , , , , Non-Controlling Interests 4, , , , , Total Equity 16, , , , , Short-Term Private Debt Securities Amounts Due to Holding/Related Companies & Directors Amounts Due to Associates/Jointly-Controlled Entities Other Short-T erm Debts 6, , , , , Trade Payables 2, , , , , T axation Dividends Payable Other Current Liabilities 2, , , , Total Current Liabilities 12, , , , , Long-Term Liabilities 2, , , , , Debt-Like Hybrid Capital Long-Term Private Debt Securities Other Long-T erm Debts 2, , , , , Total Non-Current Liabilities 4, , , , , Total Liabilities 17, , , , , Total Equity + Total Liabilities 33, , , , , Hayleys PLC 4

7 FINANCIAL SUMMARY Hayleys PLC Group Unaudited STATEMENT OF COMPREHENSIVE INCOME (LKR million) 31-Mar Mar Mar Mar Sep-12 Revenue 32, , , , , Operating Profit/(Loss) before Depreciation, Interest & Tax 3, , , , , Depreciation & Amortisation (799.34) (964.46) (1,262.89) (1,621.33) (884.78) Operating Profit/(Loss) before Interest & Tax 2, , , , , Finance Costs (1,205.90) (1,007.74) (1,209.66) (1,471.16) (1,100.71) Debt-Related Foreign Exchange Gain/(Loss) (93.90) (319.65) 0.00 Operating Profit/(Loss) before Tax , , , , Other Income/(Loss) , Non-Recurring Items (99.98) 0.00 (5.28) Share of Associates/Jointly-Controlled Entities Profits/(Losses) Pre-Tax Profit/(Loss) 1, , , , , T axation (571.24) (684.20) (903.85) (960.67) (673.26) Net Profit/(Loss) , , , , Other Comprehensive Income/(Loss) (69.01) Total Comprehensive Income/(Loss) , , , , Additional Disclosure: Net Profit Attributable to Non-Controlling Interests , Dividends - Ordinary Shares & Preference Shares Unaudited STATEMENT OF CASHFLOW (LKR million) 31-Mar Mar Mar Mar Sep-12 Pre-Tax Profit/(Loss) 1, , , , , Adjustments 1, , , , , Operating Profit/(Loss) before Working Capital Changes 3, , , , , T ax Paid (568.77) (600.89) (748.49) (1,066.72) (553.00) Funds from Operations 2, , , , , Changes in Working Capital (334.30) (453.02) (1,847.14) (2,715.27) (1,851.54) Other Income/(Expenses) (166.60) (369.88) (230.43) (344.78) (186.93) Net Cashflow from Operating Activities 2, , , , , Capital Expenditure (1,312.83) (902.49) (2,934.93) (5,035.77) (1,969.88) Free Operating Cashflow , (521.95) (2,599.84) Other Investing Outflows (337.78) (4,109.08) (3,319.51) (3,890.48) (396.10) Investing Inflows 1, , , , Pre-Financing Cashflow 2, (2,247.06) (3,085.89) Interest Payments (1,216.84) (1,032.47) (1,209.65) (1,471.16) (1,183.52) Net Changes in Borrowings (667.83) (637.14) 2, (110.66) Dividend Payments (225.00) (375.00) (245.00) (350.00) (300.00) Others Net Increase/(Decrease) in Cash & Cash Equivalents (1,996.88) (1,496.44) (4, ) (1,483.88) Opening Cash Balance (4,267.43) (3,994.29) (5,897.95) (7,394.39) (11,708.75) Closing Cash Balance (3,877.53) (5,991.17) (7,394.39) (11,708.05) (13,192.63) Hayleys PLC 5

8 FINANCIAL RATIOS Hayleys PLC Group Unaudited KEY RATIOS 31-Mar Mar Mar Mar Sep-12 PROFITABILITY (%): OPBDIT Margin 9.44% 10.96% 7.17% 8.70% 11.69% OPBIT Margin 6.97% 8.43% 4.84% 6.10% 9.15% Pre-T ax Profit Margin 4.25% 8.64% 3.75% 7.71% 6.13% Net Profit Margin 2.48% 6.84% 2.08% 6.17% 4.19% Return on Capital Employed 10.35% 12.41% 7.55% 13.38% 12.42% CAPITALISATION (TIMES): Gearing Ratio Net Gearing Ratio Debt-Capital Ratio DEBT COVERAGE (TIMES): Interest Coverage Ratio OPBDIT Debt Coverage Ratio Funds from Operations Debt Coverage Ratio Operating Cashflow Debt Coverage Ratio Free Operating Cashflow Debt Coverage Ratio (0.03) (0.12) 0.02 LIQUIDITY (TIMES): Current Ratio Quick Ratio Cash and Cash Equivalents to Short-T erm Debts Short-T erm Debts to T otal Debts (%) 75.36% 83.28% 73.36% 73.77% 74.13% CASH CYCLE (DAYS) Receivables Cycle Payables Cycle Inventory Cycle Operating Cash Cycle OPBDIT = Operating Profit Before Depreciation, Interest & Tax OPBIT = Operating Profit Before Interest & Tax Hayleys PLC 6

9 FINANCIAL RATIOS Hayleys PLC Group KEY FINANCIAL RATIOS FORMULAE PROFITABILITY (%): OPBDIT Margin OPBDIT / Revenue OPBIT Margin OPBIT / Revenue Pre-Tax Profit Margin Pre-Tax Profit / Revenue Net Profit Margin Net Profit / Revenue After-Tax Return on Equity Net Profit / Total Equity Return on Capital Employed (Pre-Tax Profit + Finance Costs* + Debt-Related Foreign Exchange Loss/(Profit)) / (Total Debts + Total Equity) Dividend Payout Ratio Ordinary Share Dividends / Net Profit Effective Tax Rate Taxation / Pre-Tax Profit CAPITALISATION (TIMES): Gearing Ratio Net Gearing Ratio Debt-Capital Ratio Long-Term Gearing Ratio Short-Term Gearing Ratio Total Debts / Total Equity (Total Debts - Cash & Bank Balances) / Total Equity Total Debts / (Total Equity + Total Debts) Total Long-Term Debts / Total Equity Total Short-Term Debts / Total Equity DEBT COVERAGE (TIMES): Interest Coverage Ratio OPBDIT / (Finance Costs* + Preference Share Dividends + Interest Capitalised + Realised Debt-Related Foreign Exchange Loss/(Gain)) Operating Cashflow Interest Coverage Ratio Net Operating Cashflow / (Interest Paid* + Preference Share Dividends Paid + Realised Debt-Related Foreign Exchange Loss/(Gain)) OPBDIT Debt Coverage Ratio OPBDIT / Total Debts Funds from Operations Debt Coverage Ratio Funds from Operations / Total Debts Operating Cashflow Debt Coverage Ratio Net Operating Cashflow / Total Debts Free Operating Cashflow Debt Coverage Ratio Free Operating Cashflow / Total Debts Pre-Financing Cashflow Debt Coverage Ratio Pre-Financing Cashflow / Total Debts LIQUIDITY (TIMES): Current Ratio (Current Assets - Amounts Due from Related Parties) / (Current Liabilities - Amounts Due to Related Parties) Quick Ratio (Current Assets - Amounts Due from Related Parties - Inventory) / (Current Liabilities - Amounts Due to Related Parties) Cash and Cash Equivalents to Short-Term Debts (Cash & Bank Balances + Money Market Instruments) / Short-Term Debts Short-Term Debts to Total Debts (%) Short-Term Debts / Total Debts CASH CYCLE (DAYS) Receivables Cycle Net Trade Receivables / Revenue x 365 Payables Cycle Trade Payables / Cost of Sales x 365 Inventory Cycle Total Inventory / Cost of Sales x 365 Operating Cash Cycle Receivables Cycle - Payables Cycle + Inventory Cycle Adjusted ratios take into consideration non-cancellable operating leases and/or other liabilities excluded from statement of financial position, where applicable. * Include on-going, non-discretionary payments on hybrid securities, if any. OPBDIT = Operating Profit Before Depreciation, Interest & Tax OPBIT = Operating Profit Before Interest & Tax Hayleys PLC 7

10 CREDIT RATING DEFINITIONS Corporate Credit Ratings A Corporate Credit Rating ( CCR ) is RAM Ratings Lanka's current opinion on the overall capacity of an entity to meet its financial obligations. The opinion is not specific to any particular financial obligation, as it does not take into account the expressed terms and conditions of any specific financial obligation. Long-Term Ratings AAA An entity rated AAA has a superior capacity to meet its financial obligations. This is the highest long-term CCR assigned by RAM Ratings Lanka. AA An entity rated AA has a strong capacity to meet its financial obligations. The entity is resilient against adverse changes in circumstances, economic conditions and/or operating environments. A An entity rated A has an adequate capacity to meet its financial obligations. The entity is more susceptible to adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. BBB An entity rated BBB has a moderate capacity to meet its financial obligations. The entity is more likely to be weakened by adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. This is the lowest investment-grade category. BB An entity rated BB has a weak capacity to meet its financial obligations. The entity is highly vulnerable to adverse changes in circumstances, economic conditions and/or operating environments. B An entity rated B has a very weak capacity to meet its financial obligations. The entity has a limited ability to withstand adverse changes in circumstances, economic conditions and/or operating environments. C An entity rated C has a high likelihood of defaulting on its financial obligations. The entity is highly dependent on favourable changes in circumstances, economic conditions and/or operating environments, the lack of which would likely result in it defaulting on its financial obligations. D An entity rated D is currently in default on either all or a substantial portion of its financial obligations, whether or not formally declared. The D rating may also reflect the filing of bankruptcy and/or other actions pertaining to the entity that could jeopardise the payment of financial obligations. Short-Term Ratings P1 An entity rated P1 has a strong capacity to meet its short-term financial obligations. This is the highest short-term CCR assigned by RAM Ratings Lanka. P2 An entity rated P2 has an adequate capacity to meet its short-term financial obligations. The entity is more susceptible to the effects of deteriorating circumstances than those in the highest-rated category. P3 An entity rated P3 has a moderate capacity to meet its short-term financial obligations. The entity is more likely to be weakened by the effects of deteriorating circumstances than those in higher-rated categories. This is the lowest investment-grade category. NP An entity rated NP has a doubtful capacity to meet its short-term financial obligations. The entity faces major uncertainties that could compromise its capacity for payment of financial obligations. D An entity rated D is currently in default on either all or a substantial portion of its financial obligations, whether or not formally declared. The D rating may also reflect the filing of bankruptcy and/or other actions pertaining to the entity that could jeopardise the payment of financial obligations. For long-term ratings, RAM Ratings Lanka applies signs plus (+), flat or minus (-) in each category from AA to C. The sign plus (+) indicates that the entity ranks at the higher end of its generic rating category; the sign flat indicates a mid-ranking; and the sign minus (-) indicates that the entity ranks at the lower end of its generic rating category. Hayleys PLC 8

11 CREDIT RATING DEFINITIONS Issue Ratings An Issue Rating is RAM Ratings Lanka's current opinion on the creditw orthiness of a particular debt issue. It reflects the overall capacity and w illingness of an issuer to meet the financial obligations on a particular debt issue on a full and timely basis, taking into account its expressed terms and conditions. Long-Term Ratings AAA An issue rated AAA has a superior capacity to meet its financial obligations. This is the highest long-term Issue Rating assigned by RAM Ratings Lanka. AA An issue rated AA has a strong capacity to meet its financial obligations. The entity is resilient against adverse changes in circumstances, economic conditions and/or operating environments. A An issue rated A has an adequate capacity to meet its financial obligations. The entity is more susceptible to adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. BBB An issue rated BBB has a moderate capacity to meet its financial obligations. The entity is more likely to be w eakened by adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. This is the low est investment-grade category. BB An issue rated BB has a w eak capacity to meet its financial obligations. The entity is highly vulnerable to adverse changes in circumstances, economic conditions and/or operating environments. B An issue rated B has a very w eak capacity to meet its financial obligations. The entity has a limited ability to w ithstand adverse changes in circumstances, economic conditions and/or operating environments. C An issue rated C has a high likelihood of defaulting on its financial obligations. The entity is highly dependent on favourable changes in circumstances, economic conditions and/or operating environments, the lack of w hich w ould likely result in it defaulting on its financial obligations. D An issue rated D is currently in default on either all or a substantial portion of its financial obligations, w hether or not formally declared. The D rating may also reflect the filing of bankruptcy and/or other actions pertaining to the entity that could jeopardise the payment of the financial obligations. Short-Term Ratings P1 An issue rated P1 has high safety for payment of financial obligations in the short term. This is the highest short-term Issue Rating assigned by RAM Ratings Lanka. P2 An issue rated P2 has adequate safety for payment of financial obligations in the short term. The issuer is more susceptible to the effects of deteriorating circumstances than those in the highest-rated category. P3 An issue rated P3 has moderate safety for payment of financial obligations in the short term. The issuer is more likely to be w eakened by the effects of deteriorating circumstances than those in higher-rated categories. This is the low est investment-grade category. NP An issue rated NP has doubtful safety for payment of financial obligations in the short term. The issuer faces major uncertainties that could compromise its capacity for payment of a particular debt issue D An issue rated D is either currently in default or faces imminent default on its financial obligations, w hether or not formally declared. The D rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer that could jeopardise the payment of a particular debt issue. For long-term ratings, RAM Ratings Lanka applies signs plus (+), flat or minus (-) in each category from AA to C. The sign plus (+) indicates that the issue ranks at the higher end of its generic rating category; the sign flat indicates a mid-ranking; and the sign minus (-) indicates that the issue ranks at the lower end of its generic rating category. Hayleys PLC 9

12 Published by RAM Ratings (Lanka) Ltd Reproduction or transmission in any form is prohibited except by permission from RAM Ratings Lanka Copyright 2013 by RAM Ratings Lanka RAM Ratings (Lanka) Ltd No 9, Arthur s Place Colombo 4 Tel: (9411) / (9411) Fax: (9411) [email protected] Website: RAM Ratings Lanka receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings Lanka s credit opinions or other analytical processes. In all instances, RAM Ratings Lanka is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings Lanka reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications. RAM Ratings Lanka, its rating committee members and the analysts involved in the rating exercise have not encountered and/or are not aware of any conflict of interest relating to the rating exercise. RAM Ratings Lanka will adequately disclose all related information in the report if there are such instances. Hayleys PLC 10