Qivalio has assigned a long-term corporate rating of BBB- for Avril SCA, the holding company of Avril Group. In the meantime, Qivalio has also assigned a BBB- instrument rating for the envisaged NEU MTN program of up to €75m, and an SR2 short-term rating for the envisaged NEU CP program of up to €300m.
Avril Group is a large French private group specialized in the industrial processing and transformation of oilseed grains into oils and proteins (crushing, refining, etc) for various applications such as biodiesel, edible oils, oleochemicals, etc. The group also has a financial branch (Sofiproteol), rated A- by Qivalio as of 31 January 2022, through which it invests in the agribusiness and food industries, especially companies in the oils and protein sectors. Avril Group posted FY20 revenues of €5.8bn for EBITDA of €243m (equivalent to a 4.3% margin). For the nine months to end-September 2021, EBITDA was already €260m to be compared with €143m for the corresponding period of 2020.
Our ratings are supported by the group’s size (in terms of revenues and EBITDA) in particular through its biodiesel division. Avril also enjoys rather strong business positions (notably in the edible oils segment where the main companies Lesieur and Lesieur Cristal enjoy very good market share respectively in France and in North Africa), and good product diversification (with many applications for oils and proteins through the different steps of the refining process, especially through the oleochemicals division). We have also factored in the technical know-how and capital required in the sector, which in our view establish quite solid barriers to entry. Credit metrics are overall good with notably a Qivalio-adjusted net leverage ratio (adjusted for operating leases and employee benefits) of 2.3x as of end-2020, which is expected to decrease to 1.9x on average over 2021-22. The overall prudent financial policy of the group, notably through its financial activities, also contributes positively to the ratings.
However, low geographic diversification - with some 73% of revenues realised in France - is a constraining factor, as is the volatility of the market. Raw material prices follow market trends. At the same time, Avril cannot always pass on price increases, especially in the edible oils distribution sector, where large food companies and retailers usually have significant bargaining power. Concerning the group’s EBITDA margin, it has been in the range 2.0-4.2% over the past 4 years. While we anticipate a significant improvement in margins over our forecast period (to between 4.3% and 5.0% on average), mainly driven by biodiesel and oleochemicals activities, it is improbable at present that the group - the strategy of which is notably oriented towards improving margins - will be able to improve them more significantly, which would enable the group to sustain the necessary capex while not limiting cash generation. As a result, some credit metrics - such as the adjusted FFO/net adjusted debt ratio - are capped, thereby constraining our ratings. The low liquidity score for the group, which derives from some imbalance between long-term debt and short-term debt, is another constraining factor.
ESG factors do not weigh significantly on our ratings. However, we would emphasize that the group is committed to helping transitioning to a more sustainable world. While biodiesel - an ingredient blended with diesel - may be at risk over the very long term, it is nevertheless a significant part of the transition towards cleaner mobility in road transport and offers reliable alternative solutions to oil-sourced energy. Avril is also very active on the R&D front to provide clean, fossil-free alternative solutions to different industries through its oleochemicals and proteochemicals businesses.
In order to benefit from current favourable financial market conditions (i.e. low interest rates), and to diversify funding sources, the company is contemplating the implementation of both NEU MTN and NEU CP programs - €75m for the NEU MTN program, and €300m for the NEU CP program. According to our recovery and instrument rating methodology, the NEU MTN instrument being unsecured and unsubordinated, the rating is similar to the long-term corporate rating, which results in a BBB- rating for the envisaged NEU MTN program.
As of end-2020, Avril’s consolidated gross debt was €1.25bn: €0.39bn for Sofiproteol and €0.86bn for industrial divisions. This latter amount was mainly split between €0.37bn of short-term bank debt and €0.36bn of long-term debt in Avril SCA, the main part of which related to the Club facility with €0.15bn maturing in 2023. The Club facility also included €0.42bn of undrawn RCF maturing in 2023.
Adjusted for 60% of readily marketable inventories (RMI), deconsolidated factoring, employee benefits and operating leases, Qivalio-adjusted net debt stands at €0.64bn (€0.38bn for the covenant net debt according to Avril), equivalent to a Qivalio-adjusted net leverage ratio of 2.3x.
Avril’s Qivalio-adjusted net debt as of end-September 2021 is estimated at c.€0.80bn, equivalent to a Qivalio-adjusted net leverage ratio in the range 2.2-2.3x. The increase in the net debt resulted from an increase in working capital change resulting from the increase in raw material prices.
As of September 2021, Avril’s liquidity score was in the range 1-2 years as per our methodology. This ‘low’ score results from limited FCF expected over our forecast period, a significant amount of short-term debt with respect to long-term debt, and upcoming maturities in 2023 with respect to the Club facility tranches A to D.
We believe Avril’s liquidity profile lacks balance between long-term debt and short-term debt.
Our Stable outlook reflects our view that, although credit metrics for end-2021 will show improvement on the back of a very good year, especially for the crushing and biodiesel business, 2022 is expected to be less impressive in terms of performance, resulting in broadly unchanged credit metrics in a year’s time.
List of ratings
• LT corporate rating: BBB-
• NEU MTN rating: BBB-
• Short-term/NEU CP rating: SR2
An upgrade to our long-term ratings could result from an improvement in margins and cash generation which would result in improved credit metrics. Better geographic diversification would also help to improve the credit profile.
Meanwhile, should margins deteriorate or should the group adopt a more aggressive financial policy, this could result in a downgrade of our long-term ratings.
With respect to the short-term rating, an upgrade is rather improbable at present and would result from a significant unforeseen change in credit metrics and financial policy. A downgrade may derive from a deterioration of credit metrics, on the back of a change in market prices as well as further deterioration of the liquidity profile.
SPRR/2022 - 31-01-2022
Long-term rating report on envisaged NEU MTN program and short-term rating report on envisaged NEU CP program
Rating initiation: Yes
Last rating action: N/A
Rating nature: Solicited, short-term public rating on NEU CP instrument, long-term public corporate rating and NEU MTN instrument public rating.
With rated entity or related third-party participation: Yes, the rating report was issued after having been reviewed by the issuer.
With access to internal documents: Yes
With access to management: Yes
Ancillary services provided to the rated entity: There are no ancillary services provided to Avril SCA. However, Qivalio provides solicited public ratings to Sofiproteol, which is owned by Avril SCA and is consolidated within the Avril Group.
Name of the rating committee chair: Marc Pierron, Senior Rating Analyst
Material sources used to support the rating decision:
- Consolidated financial statements 2017, 2018, 2019, 2020
- Management presentation on 2020 and 9M21 results
- Detail of financial debt as of end-2020
- Call with management
Limitation of the rating action:
- Qivalio believes that the quality and quantity of information available on the rated entity is sufficient to provide a rating
- Qivalio has no obligation to audit the data provided
Our methodology for short-term ratings is available at: https://files.qivalio.net/documents/compliance/SrShortTermCorporateRatingMethodology.pdf
Our methodology for corporate ratings is available at: https://files.qivalio.net/documents/compliance/SrLongTermCorporateRatingMethodology.pdf
Our methodology for instrument ratings is available at: https://files.qivalio.net/documents/compliance/QIVALIO-Recovery-and-instrument-rating-methodology-External_28Oct20.pdf
Our methodology for ESG considerations is available at:
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