Moody's changes Exalmar's outlook to stable, affirms ratings

At the same time, the credit rating agency affirmed Exalmar's B3 corporate family and senior unsecured ratings.

Exalmar's B3 ratings incorporate primarily the company's vulnerability to climatic conditions and fishing quotas regulation; a pronounced cash flow seasonality; plus its limited operating scale and modest business diversification compared to regional peers, as well as other seafood and protein-industry companies.

The rating also reflects the exposure to volatile volume, as well as price trends of the commoditized global fishmeal and fish oil market. These credit negatives are to some extent offset by Exalmar's position as the third-largest fishmeal producer in Peru, the world's leading fishmeal nation; a successful operating history in its current business configuration; and some revenue diversification from its direct human consumption business.

Exalmar's volumes and thus its cash flow critically depend on the level of the catch of anchovies, the company's main raw material, which varies with the total allowable catch set prior to each fishing season by Peru's Production Ministry.

Anchovy catch levels vary because of changing climatic conditions, in particular by El Niño or La Niña phenomena effects.

The first fishing season of 2017 was set at 2.8 million metric tons; a 40% increase when compared to the last season in 2016. This is the fourth consecutive increase in the quotas set by the Ministry.

According to the most recent report from Peru's federal climate agency ENFEN, it estimates a 58% likelihood of seawater conditions and temperatures remaining "neutral" in Peru's 2017-18 summer season (December to March), a 6% probability of a moderate-strong El Niño, and a 3% probability of moderate-strong La Niña, implying a more stable operating environment for Exalmar and other Peruvian fishing companies.

Moody's believe that the next couple of fishing seasons will allow companies in Peru to catch at least 2 million metric tons per season given this more stable environment.

The company's credit metrics have improved recently driven by higher fishing quotas which resulted in increased revenues and profitability.

Exalmar's adj. debt/EBITDA was 5.6x as of June 2017 with EBITDA margin of 20% over the twelve months ended June 2017. Absent severe weather conditions, Moody's estimates adj. debt/EBITDA to decline to around 3.5x by year-end 2017 and remain in that level in 2018-2019. Similarly, profitability will further improve with EBITDA margin recovering to 24% in 2017-2018.

The stable ratings outlook reflects Moody's expectation that the company's profitability and credit metrics will continue to improve absent any strong weather event that results in a decline on the quota or cancellation of a fishing season.

Founded in 1992, Pesquera Exalmar, S.A.A. is a Peruvian fishing company which produces fishmeal and fish oil used for indirect human consumption. In addition, it also sells fresh and frozen fish (mackerel, horse mackerel, giant squid, and mahi-mahi) for direct human consumption.

Exalmar has a 6.7% assigned quota in the north-center of Peru and the ability to process third-party catch, which increases its overall participation in the market. This positions the company as the 3rd largest fishing player in Peru in terms of processed anchovy.

Exalmar is majority-owned (71%) and controlled by its founder, Victor Matta Curotto, and the 29% balance is publicly traded at Lima stock exchange. For the twelve months ended June 30, 2017, the company reported revenues of $215 million.

(END) NDP/MVB