Former NSE chairman Eddy Njoroge (centre) looks on as his Flame Tree Group counterpart George Theobald (left) hits the gong accompanied by CEO Heril Bangera during listing in 2014. PHOTO | DIANA NGILA Fast moving consumer goods and plastic tanks manufacturer Flame Tree Group has a reduced ability to repay its debt, according to South Africa ratings firm Global Credit Ratings (GCR).
The agency lowered Flame Tree’s long-term debt ratings from BB+ to BB-, meaning it has dropped two places in the category of companies with moderate levels of creditworthiness.
The agency retained the company’s short-term debt ratings at B, which means it has moderate to low levels of liquidity to settle its current liabilities.
“The rating action reflects the deterioration in Flame Tree’s earnings performance and cash flow generation, which has resulted in some pressure on credit protection metrics,” GCR said.
“Flame Tree’s ratings are constrained by sustained weak earnings and cash flow generation, due to a combination of operational challenges in some key territories and higher costs of imported raw materials.”
The ratings agency said it is particularly concerned about the company’s cash flow coverage of debt, which declined to under 10 percent in the year ended December 2018.
GCR added that while the company’s total debt has remained modest and largely stable, its creditworthiness is being hurt by weaker, earnings, margins and cash flows.
The ratings firm said Flame Tree’s financial position could strengthen over the medium term from cutting costs, expansion of production capacity and sizeable contracts it has secured in multiple markets.
The company’s net profit in the half year ended June 2019 plunged 75 percent to Sh9.59 million.
Sales and distribution costs rose from Sh182 million to Sh207 million while other expenses rose from Sh19 million to Sh32 million.
The company said its Ethiopia and Mozambique businesses were affected negatively while its snacks unit was hit by drought resulting in scarcity of potatoes and price increases. This affected both production and margins.The ratings firm says Flame Tree has a strong niche position in its core plastic tanks business, supported by diversified interests in fast moving consumer goods across East Africa.“The group’s recognised supply chain advantages, underpinned by long-standing supplier relationships and an extensive network of dealers and distributors further entrench its sound competitive position,” GCR said.GCR said it may upgrade ratings for the company if it sustained improvement in earnings and cash generation in line with projections, resulting in an improvement cash flow […]
