Fitch assigns foreign currency and local currency Issuer Default Ratings (IDRs) of 'BBB-' to Amanco Holding Inc. y Subsidiarias (Amanco). Fitch has also assigned a national scale rating of 'AA+ (pan)' to Amanco. The Rating Outlook is Stable.
The ratings are supported by the company's business position as the leading manufacturer and distributor of polyvinylchloride (PVC) pipe systems in Latin America; its broad geographic diversification, with operations in 13 countries; its low cost structure; and its conservative financial profile. The diversification of cash flows is an important factor in rating the company above the Fitch 'BB+' sovereign rating of Panama and the Fitch sovereign ratings of most countries in which Amanco operates. Amanco is a holding company incorporated in Panama with all operating activities located at subsidiaries that are either wholly owned or controlled. There is high political and economic risk in some of the countries in which the company operates, which include Brazil (rated 'BB' by Fitch), Colombia (rated 'BB' by Fitch), Costa Rica (rated 'BB' by Fitch), Peru (rated 'BB' by Fitch), Venezuela (rated 'BB-' by Fitch), Ecuador (rated 'B-' by Fitch) and Argentina ('RD').
The company benefits from economies of scale and a competitive cost structure. Amanco has market leadership in most of the countries in which it operates with the exception of Brazil and Mexico, where it is the second-largest player. The company enjoys a strong brand name that is positioned regionally, product differentiation on quality, a complete product range, a wide distribution network and innovative technologies. The markets in which Amanco operates are generally fragmented, and competition from high-quality local and regional brands, as well as informal, low-cost manufacturers, is strong. Revenues are exposed to the economic cycle of each local market, particularly construction, agricultural and infrastructure public and private investments. The company is also vulnerable to high volatility in the price of PVC resins, its main raw material and an oil derivative.
From 2000-2003, revenues were pressured by weak regional economic activity and strong competition. Notwithstanding, the company's margins and EBITDA improved during this period due to the imposition of cost controls and higher operating efficiencies. Since 2004, the recovery of the local economies and renewed investments in construction and public spending has driven strong revenue growth. Operating profit margins have been under pressure from high PVC prices, although Amanco has been able to translate the majority of the cost increase to consumer prices in most of the markets it operates. The company's cost-reduction efforts, including efficiencies in its sourcing of resins through centralized agreements with petrochemical companies, have also offset some of the raw material cost pressures.
During 2005, sales grew by 16%, driven by volume and price increases in most markets, particularly Colombia, Mexico, Venezuela and Central America. Volumes declined slightly in Brazil, but the compensation effect of the real appreciation translated into a 27% growth in dollar revenues. Operating margins improved, driven by profitability gains in the Andean markets and Central America and a favorable exchange-rate factor. During 2006, the company is expecting strong revenue growth to continue, supported by a solid operating environment in most of its markets. EBITDA and operating margins should, however, remain flat from 2005 due to higher operating expenses in Brazil related to an overhaul of the company's marketing and commercialization strategy in that country.
Capacity for debt service and the repayment of short-term debt is adequate and has remained stable over the past several years despite increases in debt that have been compensated for by higher EBITDA and lower interest costs. Amanco has a conservative financial policy and relatively low consolidated leverage. The company finances its operations primarily at each domestic market. There is no holding company debt, no restrictions on dividend remittances and dividend payout is 100% after capital expenditures. Leverage ratios at local subsidiaries are conservative, with debt-to-EBITDA ratios generally below 1x with the exception of Brazil, which concentrates approximately 45% of consolidated debt. At Dec. 31, 2005, the company had a ratio of total consolidated debt to EBITDA of 1.3 times (x) and a ratio of EBITDA to interest expense of 4.5x.
At Dec. 31, 2005, total debt reached US$118 million, an increase from US$105 million at Dec. 31, 2004, related to the debt-funded acquisition of Amanco's minority stake in its Colombian operations for US$20.8 million. Short-term debt accounted for 32% of total debt and was composed of US$26 million of bank loans and revolving lines, US$9 million of a short-term portion of long-term debt and US$2 million of capital leases.
Amanco has self-imposed financial ratios and all capital investments and related leverage must comply within these parameters. Investments in capacity expansions completed in Brazil and Costa Rica over the past two years have been funded with a mix of cash and new loans, but this has had no detrimental effect on leverage ratios due to EBITDA growth. Over the past several years, the company has maintained adequate levels of liquidity with a balance of cash and marketable securities in the US$50 million-US$70 million range, generally exceeding short-term debt commitments. At Dec. 31, 2005, Amanco also had available unused short-term credit lines for approximately US$30 million.
Amanco is a leader in Latin America in the production and distribution of fluid conduction systems for hydro sanitation, irrigation and deep water wells. The company also distributes light construction systems such as roof and exterior shingles, siding, interior walls and wood panels. In 2005, Amanco had US$701 million of total revenues and US$88 million of EBITDA.