TRIS Rating Co., Ltd. has affirmed the company and issue ratings of Berli Jucker PLC (BJC) at “A+” with “stable” outlook. The ratings reflect the company’s strong competitive positions in its major business lines with a portfolio of strong brand names, well diversified business portfolio and sources of income, and strong relationships with suppliers and clients. The ratings also take into consideration the company’s proven ability to generate cash flow and cost competitiveness derived from economies of scale in production. These factors are partly offset by the intensely competitive operating environment, exposure to soaring raw material costs, and an anticipated rise in leverage due to acquisitions and the company’s business expansion. The “stable” outlook reflects BJC’s competitive strengths in its key businesses. TRIS Rating anticipates BJC will continue to maintain its operating performance and strong operating cash flow. Future investments or acquisitions, if any, should be partly funded by operating cash flow in order to maintain the debt to capitalization ratio at a moderate level.
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 became BJC’s major shareholder. TCC Group, owned a 70.06% stake in BJC as of March 2012, is a large Thai conglomerate whose business spans various industries and with Thai Beverage PLC (ThaiBev) as the flagship company in beverage business.
TRIS Rating said, BJC’s operations include the distribution and manufacturing of its own products plus contract distribution and manufacturing for other firms. At present, BJC’s core lines of business comprise: 1) Industrial Supply Chain (ISC), offering products and services in packaging, construction, and engineering; 2) Consumer Supply Chain (CSC), manufacturing, marketing, and distributing food and non-food consumer products; 3) Healthcare and Technical Supply Chain (HTSC), focusing on medical products, hospital equipment and supplies, specialty chemicals, graphics and printing products, and stationery and consumer electronics products; and 4) other businesses, including international business, Asia Book, and information technology. In 2011, total sales reached Bt31,235 million, a 22% increase from 2010, supported by both organic growth and acquisitions. In 2011, half of BJC’s total sales came from the ISC segment, 30% from CSC, and 18.4% from HTSC.
BJC’s strong business profile is enhanced by the company’s diversified portfolio of businesses and sources of income. The company has been ranked among top two operators in the packaging and consumer product businesses. BJC’s branded consumer products, i.e., Cellox, Zilk, Tasto, Dozo, and Parrot, underline the company’s competitive edge against peers. In addition, the packaging business is well secured by sizable and continual orders from ThaiBev which accounts for about 40% of sales in the packaging segment. Over the medium term, the packaging segment will continue to be BJC’s major sales and profit generator. In terms of production, BJC attempts to maximize the utilization of all plants in order to gain a cost advantage. Another key factor strengthening BJC’s competitive position is product innovation. BJC has shown a certain extent of ability to innovate and is challenged to continually deliver effective new products to stay ahead of competition.
BJC's growth strategy targets to increase the distribution and logistics services for third party products. At the same time, the company will expand its own production and distribution network. BJC is aiming to become a significant regional player, especially in Indochina. In mid 2011, the company acquired Asia Book Co., Ltd. (Asia Book), a leading English language book retailer and distributor in Thailand, intending to extend the distribution networks to educational materials and to add e-commerce capabilities and e-books platform. In the packaging segment, beside capacity expansion, BJC has invested with two of its long-term partners, to operate production facilities in Vietnam and Malaysia. Although the forthcoming expansions are likely to enhance BJC’s business profile, the company faces challenges to maximize the return on investment and to manage the increased operating risk in those overseas markets.
BJC's financial strength is supported by satisfactory operating performance, growing cash flow, and ample liquidity. However, BJC’s growth strategy has raised the level of leverage significantly. Operating income before depreciation and amortization as a percentage of sales improved to 15%-16% during the past two years, compared with 13% in 2009. The rise was mainly driven by high factory utilization and production efficiencies in packaging segment. The effects from the 2011 flood were minimal because the company’s major assets and plants were not damaged. However, the floods affected BJC in terms of higher logistics cost and some disruption in demand as some customers postponed receiving the finished goods from BJC. Going forward, operating margins will remain under pressure, largely due to intensifying competition and rising costs for raw materials. Cost control initiatives and new product introductions remain the key focuses to improve margins.
In 2011, BJC generated Bt4,060 million in funds from operations (FFOs), compared with Bt3,830 million in 2010. FFOs were mainly driven by the glass container and aluminum can segments. However, the level of leverage rose from Bt8,075 million in 2010 to Bt11,110 million in 2011 to finance Asia Book acquisition and business expansion, mainly in packaging segment. As a result, BJC’s financial leverage, as measured by the total debt to capitalization ratio, rose from 38.4% in 2010 to 43.3% in 2011. The company's liquidity profile was weaker in 2011, though it remained acceptable as the EBITDA interest coverage ratio remained high at 14.3 times and the FFO to total debt ratio was 36.6% in 2011, compared with 47.4% in 2010.
In the medium term, considering BJC’s growth strategy, the company is expected to utilize its operating cash flows to partly finance its future investments. A shift to a more aggressive financial policy or any large debt-financed acquisition may weaken the company’s financial position and add pressure on the credit ratings. TRIS Rating expects BJC to maintain a sufficient level of liquidity throughout the investment period. — End
Company Rating: Affirmed at A+ Issue Ratings: BJC145A: Bt1,500 million senior debentures due 2014 Affirmed at A+ BJC165A: Bt1,000 million senior debentures due 2016 Affirmed at A+ Rating Outlook: Stable TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand ? Copyright 2012, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.