OREANDA-NEWS. Fitch Ratings has affirmed the 'BBB' foreign currency and local currency Issuer Default Ratings (IDRs) of Alicorp S.A.A. (Alicorp) as well as the 'BBB' rating assigned to its USD450 million senior unsecured notes.

The Rating Outlook is revised to Negative from Stable.

KEY RATING DRIVERS

Higher Leverage Drives Outlook
Leverage is higher than originally forecast due to higher than expected capex and a deteriorating consumer environment in Argentina. Alicorp's net leverage ratio was 3.7x as of year-end 2014. Short-term debt increased in order to finance higher inventories and acquisitions. Following the acquisitions of Pastificio Santa Amalia and Industrias Teal in 2013, Alicorp acquired Peruvian companies Global Alimentos and Molinos Saracolca for USD108 million in 2014. Total debt as of Dec. 31, 2014 increased to PEN2,699 million (USD895 million), of which 65% was long-term.

Lower Margins
Fitch expects Alicorp's margins to recover to around 12% in 2015. Alicorp generated PEN6,284 million (USD2 billion) of revenues in 2014, an 8% increase in local currency when compared to 2013 due to a 6% increase in volumes. Higher administrative and commercial expenses related to acquisitions and the launching and re-launching of new products, as well as losses in Argentina, contributed to a slightly lower EBITDA margin of 11% in 2014 (excluding Brazilian tax benefits from 2013).

Deleveraging Expected This Year
Fitch expects Alicorp to reduce its net debt to EBITDA ratio to around 3.0x by the end of 2015. This level is still high for the rating category. Restricted dividend payments are expected in 2015 and instead use the cash to pay down its debt. Fitch also expects EBITDA margins to improve following the expansion of Alicorp's shrimp feed plant in Ecuador and a reduction of operations in Argentina.

Commodity and Currency Risk Exposure
Commodities, such as wheat and soybean, are around 60% of variable cost. Alicorp typically hedges up to 50% of its inventory and projected cash flow net exposure to foreign currency on a rolling basis. After the derivatives hedge, the currency mix of total debt was as follows: 57% Peruvian nuevos soles, 26% U.S. dollars, 6% Brazilian reais, and 11% Argentine pesos as of December 2014. Alicorp hedged USD275 million and refinanced USD150 million of its USD450 million notes with local issuances in early 2015. The percentage of Peruvian Nuevo soles is now 73% and the remaining balance is split among U.S. dollars, Brazilian reals and Argentine pesos. The majority of liabilities are fixed-rate, either direct or through derivative transactions.

Strong Market Position
Alicorp's ratings reflect the company's strong market position in the Peruvian consumer products industry due to its leading brands, broad product portfolio and extensive distribution network. These factors combine to give the company strong competitive advantages and present formidable barriers to entry. Alicorp is well positioned to benefit from a growing middle class with increasing purchasing power and access to consumer credit. Fitch expects economic growth to rebound in 2015 and 2016, averaging 5.6%.

Diversified Product Mix
Branded consumer products accounted for 57% of 2014 consolidated revenues, while industrial flour and edible oils represented 23%, and animal nutrition the remaining 20%. Alicorp is further diversifying its product base through its acquisitions and by launching new products. In 2014, revenues in the consumer goods segment increased 2%, B2B branded products remained flat (+0.5%), and animal nutrition grew 42% due to increasing demand in Ecuador and Chile.

Strong Equity Holder
While Alicorp's credit quality does not benefit from explicit guarantees, Fitch considers it positive that the company is part of Grupo Romero, one of the largest business groups in Peru. Grupo Romero has a presence regionally (Colombia, Ecuador and Bolivia) and across 20 different countries.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for the issuer include:

--Lower revenue growth - around 4% from 2015 onward;
--EBITDA margin recovery - around 12%;
--Capex at around USD90 million-USD100 million per year;
--Restricted dividends for 2015 and around USD30 million onward;
--Cash balance at around USD30 million-USD40 million;
--Net adjusted debt-to-EBITDA trending toward 2.5x and below;
--No large-scale M&A activity.

RATING SENSITIVITIES

Alicorp has been very active in acquisitions and launching new products which have progressively increased leverage higher than Fitch expectations. If the company's acquisition activity continues with lower margins and large dividend distributions resulting in net leverage (net debt/EBITDA) above 2.5x, a downgrade could follow.

A revision of the Outlook back to Stable could result if a sustained deleverage process is evidenced due to improved margins and cash flow from operations.