Type of ratings: Corporate
Rating value: BBB
License: EthiFinance Ratings
Type of ratings: Corporate
Rating value: BBB
License: EthiFinance Ratings
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.
INDUSTRY RISK ASSESSMENT
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.
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.
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.
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.
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).
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.
CASHFLOW AND LEVERAGE
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.
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
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.
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.
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.
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.
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.
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:
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Rating action: New
Action date: 2022-11-30
Date last rating: 2022-11-30
Date first rating: 2022-11-30