Fitch has assigned a `BB’ senior unsecured foreign currency debt rating to Rica Foods Inc. (Rica Foods). Fitch has also assigned a Stable Outlook to the company’s credit rating.
The rating is supported by Rica Foods’ dominant position in the Costa Rica poultry industry, as well as in animal feed and poultry by-products. Through its wholly owned subsidiaries Pipasa and As de Oros, the company accounts for approximately 70% of the broiler chicken market in Costa Rica. Rica Foods is also the leader in animal feed with a 27% market share.
Rica Foods’ leading business position and fully vertically integrated operations provide significant economies of scale and cost efficiencies. Over the past three years, the company has invested more than $25 million in new technology and property, plant and equipment to increase efficiency and output. Rica Foods’ chicken raising and processing facilities are among the most advanced in the Central America region.
Distribution is particularly strong as the company owns a fleet of more than 230 vehicles that delivers products to its own chain of 60 urban and rural outlets located throughout Costa Rica, as well as to supermarkets and independent distributors, reaching a total of more than 32,000 points of sale. Fitch believes that the company’s broad distribution network and a strong brand recognition act as entry barriers to potential competitors. In addition, consumer’s preference for fresh chicken as opposed to frozen chicken should limit imports of chicken into Costa Rica.
The poultry industry in Costa Rica enjoys attractive and relatively stable fundamentals. Per capita consumption of chicken has grown from 15.7Kg in 1994 to 20.3Kg in 1999, driven by social-economic factors such as the increasing participation of women into the labor market and the need for easy-to-prepare food products, coupled with a change in eating habits to leaner and healthier foods. At the same time, Costa Rica enjoys a stable economic and political environment. In 1999, the economy grew at 8.3% and is expected to continue to grow at a steady, albeit slightly lower pace.
For the fiscal six-month period ended March 31, 2000, Rica Foods’ revenues totaled $63.4 million with EBITDA (earnings before interest, taxes, depreciation and amortization) of $8.9 million and net income of $2.8 million. The company had export revenues of $2.2 million during the period, primarily in connection with sales of animal feed and chicken by-products to other countries in Central America and the Caribbean.
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The company lowered its cost structure through recent acquisitions and the implementation of cost-cutting measures. As a result, EBITDA (earnings before interest, taxes, depreciation and amortization) margin increased from 11.8% during fiscal year ended Sept. 30, 1998 to 15.1% in fiscal year ended Sept. 30, 1999 and was 14% at March 31, 2000.
The company has a satisfactory financial profile consistent with the rating category, with leverage at March 31, 2000 of 2.3x (total debt as a multiple of last 12 months EBITDA) and EBITDA/interest expense of 4.3x for the 12 months ended March 31, 2000.
Recently the company has been actively evaluating expansion opportunities in neighboring Central American countries, the Caribbean and other regions in Latin America. These opportunities may involve acquisitions of existing poultry and/or animal feed producers and/or the start-up of operations by Rica Foods, and thus have the potential to increase leverage above current levels.
Our rating incorporates exposure to foreign exchange risk in both purchases of raw materials (corn and soybean) and assumption of dollar-denominated liabilities. Although the company is seeking to increase export revenues, they still represent less than 3% of total revenues.
Rica Foods is the largest poultry producer in Costa Rica, it produces and sells fresh and frozen poultry, processed chicken products, commercial eggs and concentrate for livestock and domestic animals. The company also owns and operates a chain of 36 fast food fried chicken restaurants located throughout Costa Rica.
Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Banks, Corporations, Structured Finance, Insurance, Sovereigns and Public Finance Markets worldwide.