Avril SCA


Type of ratings: Corporate

Rating value: BBB

Outlook: Stable

License: EthiFinance Ratings

Solicited

RATING ACTION AND RATIONALE

  • EthiFinance Ratings has assigned a long-term corporate rating of BBB with a Stable outlook to Avril SCA, and a rating of BBB to its NEU MTN programme of up to €75m. In addition, EthiFinance Ratings has assigned a short-term corporate rating of EF1 to Avril SCA, and a rating of EF1 to its NEU CP programme of up to €300m.
  • In line with our updated methodology, the agribusiness has medium-to-high ESG risks (heatmap score of between 3.5 and 4) given its impact on the environment, which slightly constrains our industry assessment. Meanwhile, our assessment of the company’s ESG policy is advanced (company ESG score of between 0 and 1), which weighs positively on our financial assessment and therefore more than offsets the impact resulting from our industry assessment.

ISSUER DESCRIPTION

Avril Group is a large French private group specializing in the industrial processing and transformation of oilseed grains into oils and proteins (crushing, refining, etc) for various applications such as biodiesel, edible oils, and oleochemicals. The group also has a financial branch (Sofiproteol), rated by EthiFinance Ratings, through which it invests in the agribusiness and food industries, especially companies in the oils and protein sectors. For the 12 months to end-June 2022, Avril reported revenues of €8.1bn and EBITDA of €576m, equivalent to a 7.1% margin, and a net adjusted leverage ratio of 1.4x. The group is active in 19 countries through 73 industrial facilities and has nearly 7,350 employees.

FUNDAMENTALS

BUSINESS RISK PROFILE

INDUSTRY RISK ASSESSMENT

  • Good growth perspectives driven by growing sustainability practices and a shortage of facilities 

Avril is well positioned to benefit from the ongoing pro-sustainability trends. Its renewable energies business (mainly through its biodiesel product) plays a significant role in the transition towards cleaner energy. Meanwhile, other divisions enjoy resilient demand as their products are either central or connected closely to people’s habits, such as edible oils (Lesieur, Puget). Currently, the global environment has also entailed a shortage of crushing and refining facilities for seeds in Europe, from which Avril benefits both in terms of volumes and prices. The group may also benefit from the diversity of by-products and potential outlets obtained along the chain of refining rapeseed and sunflowers.

  • Technical know-how and capital required constitute high barriers to entry in our view

Entering the industrial processing and refining sector can be challenging because of the technical know-how and capital required to do so. This, in our view, establishes quite solid barriers to entry. However, the group may face some threats from newcomers in its consumer goods business, which has lower investment requirements.

  • High volatility since results depend largely on commodity prices, but EGALIM negotiations partly mitigate the impacts for edible oils

The high volatility of the market for Avril’s products constrains our ratings as the group’s performance depends on commodity prices, which follow market trends. On the bright side, under the new EGALIM law, French agricultural production companies engage in price negotiations on a regular basis with large French retailers. The outcome of these talks will henceforth play an essential role in the players’ profitability as they can mitigate the impacts of commodity prices increase going forward. 

COMPANY’S COMPETITIVE POSITIONING

•             Strong business positions with good business diversification and significant market scale, but low geographic diversification

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, both Avril subsidiaries, 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). However, rather low geographic diversification - with some 53% of revenues realized in France and 34% in Europe (excluding France) for 2021 - is a constraining factor.

 

GOVERNANCE

  • Good management quality with proven track record

Management has a solid track record of growth and improvement in margins, with notably strong resilience through the pandemic and strong improvement in the group’s financial profile despite a deteriorating economic environment (rising commodities prices and interest rates, very high inflation). We assess Avril’s financial policy as prudent.

  • Stable, private shareholding with strong ties to Avril’s main business

Avril SCA, the group’s holding company, has been a limited partnership with share capital (‘Société en Commandite par Actions, or ‘SCA’) since 2014. The specific shareholding and governance structures aim to prevent a buyout of Avril Group while allowing shareholders to have their voice heard. Avril Gestion is the ‘associé commandité’ and controls the group. The Fonds de Développement Interprofessionnel de la Filière des Oléagineux et des Protéagineux (FIDOP), Fondation Avril, FCPE Avril, Avril Partenaires SLP and FOP are the ‘associés commanditaires’. As per the by-laws, Jean-Philippe Puig represents Avril Gestion, the associé commandité, and is the ‘gérant’ (equivalent to the CEO of the group).

 

  • ESG Policy: helping to build a more sustainable world

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 petrochemicals businesses.

 

FINANCIAL RISK PROFILE

CASHFLOW AND LEVERAGE

  • High growth driven by commodity prices in 2021 and 2022, expected to normalize over our forecast period

Avril reported sales of €4.5bn for 1H22, representing a rise of 39.1% versus 1H21. The increase was mainly driven by surging commodity prices, especially energy prices, which benefited Avril’s biodiesel business, as well as the outcome of the negotiations with retailers. We expect the strong momentum to start to ease off in 2H22 - as we have already observed the first signs of price normalization - and for this to continue in 2023 and 2024, resulting in limited revenues growth going forward.

The group’s reported EBITDA for 1H22 amounted to €366m, even higher than the figure for FY21. The strong rally was mainly due to good purchase price management, where selling price increases outpaced those of costs. Going forward, we expect margins to normalize along with revenues growth. Despite its sound performance in 1H22, Avril’s adjusted free cash flow was a negative €93m for the period, mainly reflecting working capital increases. We have forecast a gradual improvement of FCF to broadly breakeven levels by 2024.

 

  • Solid financial profile

Our rating is strongly supported by Avril’s solid and improved financial profile. The EthiFinance Ratings- adjusted net leverage ratio - adjusted for operating leases, employee benefits, and readily marketable inventories (RMI) - stood at 1.4x at end-June 2022. While the ratio is expected to rise in 2023, it is expected to remain below the 2019/2020 levels. Coverage ratios are expected to suffer from higher interest rates as of 2H22 and onwards, although the improvement in EBITDA will partly mitigate the impact. The FFO/NFD ratio is expected to broadly follow the trajectory of the interest coverage ratios with a high point at end-2022, followed by some normalization for the remainder of our forecast period.

LIQUIDITY AND SOLVENCY PROFILES

  • Sound profiles bolstered by July refinancing

As of end-June 2022, Avril’s consolidated gross debt was €1.78bn: €0.4bn for Sofiproteol and €1.4bn for industrial divisions. The latter is mainly held by Avril SCA, especially through its Club Deal facilities.  

Adjusted for 60% of RMI, deconsolidated factoring, employee benefits, and operating leases, EthiFinance Ratings-adjusted net debt stood at €836m, giving the EthiFinance Ratings-adjusted net leverage ratio of 1.4x (0.8x as per Avril’s calculation with €466m for the covenant net debt, which is notably adjusted for 75% of RMI as per its revised debt contracts). 

In July 2022, the group signed a new sustainability-linked facility package of €900m, which consisted of a €100m term loan maturing in 2027, and two RCFs of €300m and €500m maturing in 2024 and 2027 respectively, alongside a new programme of €280m of receivables securitization. Covenants under the new Club Deal are expected to be complied with over our forecast period.

As of October 2022, Avril’s liquidity score was ‘superior’ as per our methodology. Avril’s excellent liquidity profile results from the refinancing of its Club Deal facilities in July, through which the group significantly extended its maturities. We would also highlight that Avril’s liquidity profile is now more balanced between short-term and long-term debt compared to last year.

 

INSTRUMENT RATING

  • BBB rating reaffirmed for the existing NEU MTN programme, and EF1 for the existing NEU CP programme

In order to diversify funding sources, the company has implemented both NEU MTN and NEU CP programmes - €75m for the NEU MTN programme and €300m for the NEU CP programme. According to our recovery and instrument rating methodology, with 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 existing NEU MTN programme.

The NEU CP rating derives from our short-term methodology and is similar to the corporate short-term rating.

MAIN FINANCIAL FIGURES

 

AZjedO9fegeeAAAAAElFTkSuQmCC

 

CREDIT METRICS EXPECTED EVOLUTION (CMEE)

  • Stable CMEE

Our Stable CMEE reflects our view that credit metrics will remain strong and broadly unchanged over the next twelve months on what we consider to be a normative assessment level for Avril. In absolute terms we expect a slight deterioration in credit metrics in 2023 but only when compared with exceptional levels reached in 2022 as a result of exceptional circumstances.

RATING SENSITIVITY

  • List of ratings: 
    • LT Rating: BBB
    • NEU MTN Rating: BBB
    • ST corporate: EF1
    • NEU CP Rating: EF1

 

  • Factors which could influence the long-term ratings

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. However, should margins deteriorate or should the group adopt a more aggressive financial policy, this could result in a downgrade of our long-term ratings.

  • Factors which could influence the short-term ratings 

With respect to the short-term rating, an upgrade is improbable at present and would result from a significant unforeseen change in credit metrics and financial policy. A downgrade may derive from an unexpected deterioration of credit metrics, on the back of a change in market prices.


REGULATORY INFORMATION

30/11/2022

Initiation report: Yes

Rating initiation: Initiated at BBB for the corporate LT rating and NEU MTN rating and at EF1 for the ST corporate rating and NEU CP rating on November 30, 2022.

Last rating action: NA

Rating nature: Solicited, public, short-term corporate rating and NEU CP instrument rating, long-term corporate rating and NEU MTN instrument 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: No.

Name of the rating committee chair: Marc PIERRON, Senior Director

Material sources used to support the rating decision:

-              Consolidated financial statements 2019, 2020, 2021

-              Management presentation on 2020 and 2021 results and current trading as of end-June 2022

-              Detail of financial debt as of end-June 2022 and end-July 2022

-             Call with management

Limitation of the rating action:

-              EthiFinance Ratings believes that the quality and quantity of information available on the rated entity is sufficient to provide a rating

-              EthiFinance Ratings has no obligation to audit the data provided

 

Our methodologies used for these ratings

https://files.qivalio.net/documents/compliance/Corporate%20Rating%20Methodology%20-%20Long-Term%20-%2020221107.pdf

https://files.qivalio.net/documents/compliance/Corporate%20Rating%20Methodology%20-%20Short-Term%20-%2020221107.pdf

https://files.qivalio.net/documents/compliance/Corporate%20Rating%20Methodology%20-%20Instruments%20-%2020221107.pdf

 

EthiFinance Ratings SL 

Calle Velázquez nº18 

28001 - Madrid 


Conditions of Use for this document and its content:

For all types of Ratings that ETHIFINANCE RATINGS, S.L. (the “AGENCY”) issues, the User may not, either by themselves or via third parties, transfer, sublease, sublicense, sell, extract, reuse, or dispose of in any other way the content of this Document to a third party, either for free or for consideration.

For the purpose of these Conditions of Use, any client who might have subscribed for a product and/or a service that allows him to be provided with the content of this Document as well as any privileged person who might access the content of this Document via www.ethifinance.com shall be considered as a User.

Nor may they alter, transform or distort the information provided in any way. In addition, the User will also not be permitted to copy and/or duplicate the information, nor create files which contain the information of the Document, either in its entirety or partially. The Document and its source code, regardless of the type, will be considered as the elaboration, creation, or work of the AGENCY and subject to the protection of intellectual property right regulation. For those uses of this Document which are permitted, the User is obliged to not allow the removal of the copyright of the AGENCY, the date of the Document's issuance, the business name as established by the AGENCY, as well as the logo, brands and any other distinctive symbol which is representative of the AGENCY and its rights over the Document. The User agrees to the conditions of Use of this Document and is subject to these provisions since the first time they are provided with this Document no matter how they are provided with the document. The Document and its content may not be used for any illicit purpose or any purpose other than those authorised by the AGENCY. The User will inform the AGENCY about any unauthorised use of the Document and/or its content that may become apparent. The User will be answerable to the AGENCY for itself and its employees and/or any other third party which has been given or has had access to the Document and/or its content in the case of damages which arise from the breach of obligations which the User declared to have read, accepted and understood upon receiving the Document, without prejudice to any other legal actions that the AGENCY may exercise in defence of its lawful rights and interests. The Document is provided on the acceptance that the AGENCY is not responsible for the interpretation that the User may make of the information contained. Credit analyses included in the Document, as well as the ratings and statements, are to be deemed as opinions valid on the date of issuance of the reports and not as statements of fact or recommendations to purchase, hold or sell any securities or to make any investment decision. The credit ratings and credit rating prospects issued by the AGENCY are consider to be its own opinion, so it is recommended that the User take it as a limited basis for any purpose that it intends to use the information for. The analyses do not address the suitability of any value. The AGENCY does not act as a fiduciary or an investment advisor, so the content of the Document should not be used as a substitute for knowledge, criteria, judgement or experience of the User, its Management, employees, advisors and/or clients in order to make investment decisions. The AGENCY will devote every effort to ensure that the information delivered is both accurate and reliable. Nonetheless, as the information is elaborated based on data supplied by sources which may be beyond the control of the AGENCY, and whose verification and comparison is not always possible, the AGENCY, its subsidiaries, and its directors, shareholders, employees, analysts and agents will not bare any responsibility whatsoever (including, without any limitations, loss of revenue or income and opportunity costs, loss of business or reputational damage or any other costs) for any inaccuracies, mistakes, noncorresponding information, incompleteness or omission of data and information used in the elaboration of the Document or in relation to any use of its content even should it have been warned of potential damages. The AGENCY does not make audits nor assume the obligation of verifying independent sources of information upon which the ratings are elaborated. Information on natural persons that may appear in this document is solely and exclusively relevant to their business or business activities without reference to the sphere of their private life and should thus be considered. We would like to inform that the personal data that may appear in this document is treated in accordance with Regulation (EU) 679/2016, on the protection of natural persons with regard to the processing of personal data and the free movement of such data and other applicable legislation. Those interested parties who wish to exercise the rights that assist them can find more information in the link: www.ethifinance.com in the Privacy Policy page or contact our Data Protection Officer in the mail dpo@ethifinance.com. Therefore the User agrees that information provided by the AGENCY may be another element to consider when making business decisions, but decisions will not be made based solely on it; that being the case the AGENCY will not be held responsible for the lack of suitability. In addition, the use of the information before courts and/or tribunals, public administrations, or any other public body or private third party for any reason shall be solely the User's responsibility and the AGENCY shall not be held responsible for any liabilities on the grounds of inappropriateness of the information's contents. Copyright © 2022 ETHIFINANCE RATINGS, S.L. All Rights Reserved. C/ Benjamín Franklin S/N, Edificio Camt, 1º Izquierda, 18100, Granada, España C/ Velázquez nº18, 3º derecha, 28001 - Madrid

Ratings

Rating action:  New

Action date: 2022-11-30

Date last rating: 2022-11-30

Date first rating: 2022-11-30

Documents

Rating report:

Return to the rating page