TRIS Rating Co., Ltd. has affirmed the company rating of Berli Jucker PLC (BJC) at “A+”. At the same time, TRIS Rating has assigned the rating of “A+” to BJC’s proposed issue of up to Bt2,500 million in senior debentures. The outlook remains “stable”. The proceed from the debenture issuance will be mainly used to refinance BJC’s existing debt and as working capital. The ratings reflect the company’s solid market position in core business with a portfolio of strong brand names, diversified business portfolio and strong relationships with suppliers and clients. The ratings also take into consideration strong cash flow generation ability, cost competitiveness from economies of scale production, and an experienced management team. These factors are partially constrained by the highly competitive operating environment, especially in the consumer product sector; and exposure to commodity price fluctuations. Ongoing concern is the future leverage levels since BJC’s medium-term growth strategy is through business expansion and acquisition both domestically and internationally.
The “stable” outlook is based on the expectation that BJC will sustain its competitive strengths and cash flow generation ability. Future investments or acquisitions, if any, should be prudently considered so as to keep leverage from a significant rise and reserve sufficient liquidity at all time.
TRIS Rating reported that BJC’s business history in Thailand dates back over a century. A major transformation happened in 2001 when the TCC Group, an investment holding company under the helm of the Sirivadhanabhakdi family, became BJC’s largest shareholder. At present, the key business lines comprise: 1) Industrial Supply Chain, offering products and services in packaging, construction and engineering; 2) Consumer Supply Chain, providing consumer products; 3) Healthcare and Technical Supply Chain, focusing on medical products, hospital equipments and supplies, industrial and food ingredients, graphics equipment and supplies, and stationery products; and 4) other businesses, including international business and information technology.
In 2010, BJC’s total revenues reached Bt26,082 million, up 14.4% from the previous year, supported by organic growth and acquisition. In 2010, half of BJC’s total revenue came from sales of Industrial Supply Chain segment, 31% from Consumer Supply Chain, 17.4% from Healthcare and Technical Supply Chain, and the remaining from the international business and information technology business.
TRIS Rating said, BJC’s business profile is characterized by a diversified portfolio of businesses and sources of income. The company has strong market positions in glass bottles, aluminum cans, tissue paper, and snacks. Industrial Supply Chain is strongly supported by sizable volume supplied on a continual basis to affiliated companies under the TCC Group. Sales of healthcare products and medical products & equipment provide a balance to the overall portfolio. The sizable production base benefits the company with economies of scale, bargaining power with suppliers and distributors, and product development costs. Although facing a highly competitive environment in the consumer product segment, strong brand equity underlines the company’s competitive edge against peers.
BJC’s financial profile remained strong, underpinned by diversified sources of cash flows, sufficient liquidity, and a moderate level of leverage. Operating income before depreciation and amortization as a percentage of sales improved to about 16% in 2010, compared with 13% in 2009. The rise was mainly driven by lower raw material prices particularly in glass bottles, as well as improved utilization due to stronger demand in packaging segment and production efficiencies. Despite this bright spot, margins from consumer products were lower because prices for materials increased; such as pulp, sugar, and palm oil. Going forward, operating margins will continue under pressure, given intensifying competitive environment and rising costs for raw materials.
BJC generated stable amount of funds from operations (FFO), in the range of Bt2,300-Bt2,600 million per year during 2008-2009, and to Bt3,871 million in 2010. FFO in 2010 grew by nearly 50% from the previous year, mainly driven by glass and can business. The earnings before interest, tax depreciation and amortization (EBITDA) interest coverage ratio remained high while the FFO to total debt ratio increased from 43.1% in 2009 to 47.9% in 2010. However, BJC’s financial leverage as measured by the total debt to capitalization ratio, rose from 34.6% in 2009 to 38.9% in 2010. The rise was due to a bond issuance in 2010, mainly to fund the acquisition of Malaya Glass Products Sdn. Bhd. (MGP) in Malaysia. BJC’s financial profile remains acceptable on the back of its strong business profile and cash flow generating capability. As BJC is positioning itself to become a regional distributor in the Asia-Pacific region, particularly in Indochina, the company is seeking for acquisition and expansion opportunities. In the medium term, the leverage level is unlikely to fall considering BJC’s strategy to invest both domestically and internationally. Although the forthcoming expansions will likely enhance BJC’s business profile, the firm will face challenges from sourcing fund and the increased operating risk especially in the international market. A shift to a more aggressive financial policy or any large debt-financed acquisition may raise the level of leverage and weaken the company’s financial position, said TRIS Rating. -- End
Company Rating: Affirmed at A+ Issue Rating: Up to Bt2,500 million senior debentures due within 2016 A+ Rating Outlook: Stable
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