May 13 (The following statement was released by the rating agency)
Fitch Ratings has assigned Want Want China Finance
Limited's senior unsecured USD600m 1.875% notes a final rating of 'A-'. The
notes are irrevocably and unconditionally guaranteed by Want Want China Holdings
Limited (Want Want). The notes are rated at the same level as Want Want's senior
unsecured rating 'A-', as the notes represent direct, unconditional, unsecured
and unsubordinated obligations of the company.
The assignment of the final rating follows the receipt of documents conforming
to information already received, and is in line with the expected rating
assigned on 30 April 2013.
Key Rating Drivers
Dominant position, niche products: Want Want is one of the most recognised
packaged food brands in China. Its key products - rice crackers, flavoured milk
and soft candies - dominate their respective niche product markets in China; its
rice crackers, for instance, have a strong cultural linkage, which drives their
high demand just before Chinese New Year.
Management estimates that its market shares for key products range between 30%
and 70% of the Chinese market. Fitch notes that these estimates may be different
if the product categories are broadened. The agency, however, acknowledges Want
Want's dominance, as evidenced by its significant pricing power, and its ability
to defend its margins despite continuous increases in raw material prices. The
company has kept EBIT margins well over 15% during the last five years, while
maintaining a compound annual growth rate (CAGR) of 21.3% for sales.
Extensive distribution network: A key strength of Want Want that is not easily
replicable is its nationwide exclusive distribution network, covering over 350
sales offices and around 8,000 distributors. The company uses this network to
grow its sales in tier-3 and tier-4 cities and the modern organised retail route
for growth in tier-1 and tier-2 cities. This, together with its investment in
information technology, allows for significant savings in working capital
management, and contributes to the company's pricing power and ability to
respond rapidly to changes in demand patterns.
Fitch believes that Want Want will be able to continue its organic growth by
expanding its distribution network in third, fourth and even fifth tier cities
while maintaining its market position and high margins.
Net cash position: Want Want has maintained a conservative financial position,
with a net cash position since its IPO in 2008. This is a result of a continuous
positive free cash flow (FCF), the company's history of growing organically and
its aversion to acquisitions. Want Want's current ratings are predicated on
Fitch's view that the company will continue to maintain a net cash position.
Limited diversification: Want Want has a limited product portfolio compared with
global peers rated in the single-A rating category, with just three main product
categories. Its flavoured milk segment is dominated by a single product, Hot Kid
Milk. Fitch acknowledges, however, that these products continue to command high
organic sales growth and profit margins, and does not expect any material change
to these factors over the next two to three years.
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
-failure to maintain net cash position
-organic growth falling below market rate or weakening of distribution networks
leading to EBIT margin falling below 15% on a sustained basis
-increase in working capital, capex or dividend payout leading to failure to
maintain positive FCF
Positive: No immediate positive rating pressure given its limitation on product
diversification. Positive rating action may be considered only if Want Want
achieves significant diversification of its current product portfolio on a