The credit rating of PJSC «Russian Aquaculture» (hereinafter, Russian Aquaculture, the Company, or the Group) is based on the medium assessment of the operational risk profile, which in turn is determined by the high vertical integration with low scores for product diversification and the share of high value-added products. Currently, ACRA assesses the Company's market positions as average, but notes certain trends towards their strengthening, which in the future may push up the factor assessment and the credit rating. This was reflected in the Positive outlook on the Company's credit rating. The Agency maintains medium assessments of accessibility and diversification of sales markets and exposure to climate risks. The Company's corporate governance factor is assessed as moderately high.
The Group's financial risk profile assessment is high. Russian Aquaculture demonstrates a low leverage and a very high coverage of interest payments. The Company maintains a very high level of profitability, moreover, it is expected to increase in 2022 against the backdrop of rising fish prices. However, the level of profitability will depend on the availability and prices of roe, smolt, and fish feed.
Russian Aquaculture is a group of companies that includes enterprises specializing in the farming of Atlantic salmon, as well as sea and lake trout. Its sites for fish farming are concentrated in the Murmansk Region and Karelia. Products are delivered mainly to the markets of Moscow, the Moscow Region, and St. Petersburg.
Key assessment factors
Medium assessment of the operational risk profile. Russian Aquaculture remains the largest Russian producer of farmed salmon and trout, sales of which form almost all of its revenue. At the end of 2021, the Group's share in the Russian market was 17%, while imports formed its basis. In 2022, a significant volume of imports began to leave the Russian market, following which the Company's share increased to 27% in the first quarter of this year. ACRA assumes further growth of the Group's market share, which may lead to a higher assessment of its market positions and is reflected in the Positive outlook on the Company's credit rating. The Company's sales geography remains concentrated in the Moscow area (55% of revenue for 2021). ACRA notes a decrease in the share of the largest buyer (Russian Fish Company JSC) from 50% in 2020 to 37% in 2021 (31% in the first five months of 2022).
Currently, the structure of the Company's operating costs retains a high share of European suppliers of roe, smolt and fish feed. Roe is supplied entirely by third parties. The Company has declared that the supplies of roe are fully secured for 2023. The bulk of the smolt required in 2023 is to be supplied by farms owned by the Group. The Company has plans to achieve self-sufficiency in smolt supplies by 2027. Feed is purchased mainly from Norwegian producers. Currently, in order to minimize possible risks, Russian Aquaculture is continuing to expand the range of suppliers of roe, smolt and feed. ACRA believes that due to the long operating cycle, the materialization of such risks will have a lesser impact on the Company's financial performance in 2022, while the main negative effect will manifest in 2023 and subsequent years.
The profitability is still very high amid a significant increase in the Company's revenue. Revenue growth in 2021 exceeded ACRA’s forecast and amounted to 91%, its volume reached RUB 15.9 bln. Judging by the level of stocks, ACRA forecasts that in 2022, the revenue may increase by another 50% due to a significant increase in prices for salmon and trout. The consumption drop caused by rising prices is largely affects importers who reduce supplies to the Russian market. The Agency expects the average revenue growth rate in 2023–2025 at 10–20%.
In 2021, Russian Aquaculture managed to recover its profitability after a slight drop in 2020. The FFO before net interest and taxes margin, according to ACRA's methodology, continues to correspond to a very high level. On the back of increased revenue and profitability, FFO before net interest and taxes more than doubled in 2021, which corresponds to the medium score for business size.
Low leverage. The total debt of Russian Aquaculture grew in 2021, but ACRA expects that it will gradually decrease by 10–20% in 2022. The Company's debt is almost entirely denominated in rubles; there is no concentration on the largest lenders. At the end of 2021, the ratio of total debt to FFO before net interest was 1.2x, which indicates a return to the level of 2019 after a short-term increase to 2.1x in 2020. According to ACRA’s forecast, in 2022, the ratio may fall below 1.0x, but in 2023–2025, it is expected to return to 1.0–2.0x.
In 2021, the ratio of FFO before net interest to interest reached 13.8x, which corresponds to the very high assessment of coverage. Although a significant part of the debt was attracted by the Company at a floating interest rate against the backdrop of an increase in the key rate of the Bank of Russia in 2022, the Agency expects the indicator to remain at a very high level both by the end of this year and in the forecast period.
High liquidity assessment amid moderate pressure of cash flow. In 2021–2022, Russian Aquaculture is passing the peak of capital expenses; however, against the background of revenue growth, CAPEX pressure on cash flows is decreasing. The next peak in capital expenses is expected closer to 2025. At the end of 2022, ACRA expects a positive free cash flow (FCF), however, the Agency assumes that in 2023–2025, the indicator may enter the negative area from time to time. As a result, in 2022, FCF will support the liquidity assessment. Liquidity is additionally supported by significant balances of available credit lines and a comfortable debt repayment schedule.
Key assumptions
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No changes in the feed, smolt and roe suppliers.
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Fish mortality at the Company’s farms in 2022–2025 to remain at the level of 2021.
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Fish farms to be stocked as planned.
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The share of net profits applied to dividend payouts no more than 50%.
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Maintaining the access to external sources of liquidity.
Potential outlook or rating change factors
The Positive outlook assumes that the rating will highly likely to be upgraded within the 12 to 18-month horizon.
A positive rating action may be prompted by:
Stronger market positions of the Company, amid no negative effects of the geopolitical situation;
Stronger vertical integration and deeper fish processing;
The weighted average ratio of total debt to FFO before net interest declining below 1.0х and the FCF margin sustainably exceeding 2%.
A negative rating action may be prompted by:
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The weighted average ratio of total debt to FFO before net interest payments exceeding 2.0х;
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The weighted average ratio of FFO before net interest to interest falling below 8.0х;
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Refusal from cooperation by any of the major suppliers of feed, smolt or roe, able to affect the production program of the Company, or other material negative event associated with geopolitical risks;
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Materialization of biological and climatic risks able to affect the financial profile of the Company;
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Worsening access to sources of liquidity.
Rating components
SCA: a-.
Support: none.
Issue ratings
No outstanding issues have been rated.
Regulatory disclosure
The credit rating was assigned under the national scale for the Russian Federation based on the Methodology for Credit Ratings Assignment to Non-Financial Corporations under the National Scale for the Russian Federation, and the Key Concepts Used by the Analytical Credit Rating Agency within the Scope of Its Rating Activities.
The credit rating of PJSC «Russian Aquaculture» was published by ACRA for the first time on August 13, 2020. The credit rating and its outlook are expected to be revised within one year following the publication date of this press release.
The credit rating was assigned based on the data provided by PJSC «Russian Aquaculture», information from publicly available sources, as well as ACRA’s own databases. The rating analysis was performed using the IFRS consolidated statements of PJSC «Russian Aquaculture». The credit rating is solicited, and PJSC «Russian Aquaculture» participated in its assignment.
In assigning the credit rating, ACRA used only information, the quality and reliability of which was, in ACRA's opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to PJSC «Russian Aquaculture». No conflicts of interest were discovered in the course of the rating process.
