CP Bangladesh Co.

Limited

Credit Rating Report

C.P. Bangladesh Co. Limited

Particulars C.P. Bangladesh Co. Limited BDT 438.00 million Aggregate Long Term Outstanding BDT 10,732.00 million Aggregate Funded & Non Funded Working Capital Limit Rating Outlook Lr Loan rating; ST Short Term Date of Rating: 18 October 2012 Validity: The Entity and long term ratings are valid up to 30 June 2013 and the Short Term rating is valid up to limit expiry date of respective credit facilities or 30 June 2013 whichever is earlier. Rating Based on: Audited Financial Statement as on 31 December 2011, Bank Liability position as on 30 June 2012 and other relevant quantitative as well as qualitative information up to the date of rating declaration. Methodology: CRABs Corporate Rating Methodology (www.crab.com.bd) Analysts: Mavin Ahmed mavin@crab.com.bd Mohammad Reeshad Rahman reeshad@crab.com.bd Ratings AA3 AA3 (Lr) ST-2 Stable Remarks Entity Please see Appendix-1 for details -

RATIONALE
Credit Rating Agency of Bangladesh Limited (CRAB) has assigned AA3 (Pronounced as Double A Three) rating in the long term to C. P. Bangladesh Co. Limited. CRAB has also assigned AA3 (Lr) rating to BDT 438.00 million aggregate long term outstanding as well as assigned ST-2 rating to BDT 10,732.0 million aggregate funded and non funded working capital limit in the short term of the Company. The ratings of CPBL considered strong market position in its related industry, capacity building and sound business performance during last three years, strong asset base and equity position while also taking into account of cyclical nature of the poultry industry and local feed market, current leverage position of the Company. However, CRAB observed recent improvement in the financial matrix of the Company and found that its coverage position has been improved in 2012 compared to previous year. CPBL is a concern of Thailand based Charoean Pokphand (CP) Group which has more than 200 companies in around 20 countries around the world. CP group is mainly concentrated in Agribusiness, retail business and telecommunication. The primary operation of CPBL in Bangladesh is poultry farming, manufacturing of poultry feed and production of broiler and layer chicks. CPBL has established Feed mills, Hatcheries, Breeder Farms and

PROFILE
C. P. Bangladesh Co. Limited (hereinafter referred as CPBL or The Company) has been incorporated in 1999 as a Private Limited Company and engaged in producing poultry and animal feed, eggs and DOC and also imports and trades vaccines, processed food etc. The Company is a subsidiary of CP Group, Thailand. As per the latest management provided information on 30 June 2012, CPBL reported half-yearly revenue of BDT 6,582.0 million and Net profit after tax of BDT 873.0 million.

Broiler

Farms

in

Bangladesh.

The

fully

integrated

operations in Bangladesh operated by CPBL includes raw material sourcing for animal feed production and distribution, animal breeding and farming, process foods etc. Existing and new facilities in diversified location strengthen CPBLs distribution channel and operaion in Bangladesh as well as give CPBL scale of economies. Among the raw materials for feed, Corn occupies approximately 50%-60% of the requirement and the price is quite volatile, but price movement in the international market affects the cost structure of CPBL.

CRAB I CRAB Ratings on Corporate Credit Digest I 31 March 2013

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C.P. Bangladesh Co. Ltd

Moreover pandemics, such as Avian Influenza may have a severe effect on the revenue of the Company; however, diversified revenue mix can buffer such impact to some extent. CPBLs revenue marked a CAGR (2007-2011) of 30%, mostly driven by strong growth in feed mill and DOC business. The revenue growth of CPBL slowed down in 2011 and CPBLs raw material purchase attributed 55%-60% of its revenue. However, in 2011, it increased to 74% which resulted in increase in CoGS and decrease in gross profit margin and thus resulted in a sharp nosedive in profitability margin in 2011. But in 2012 the Company regained its profitability position and reported Net profit of BDT 873.0 million (1H 2012). Though the return from the feed segment is cyclical, CPBLs revenue is strongly concentrated in the feed business as 60% revenue comes from such segment where 89% of feed business revenue was generated from poultry feed segment and rest of the revenue comes from fish and other feed segments. Apart from the poultry business, revenue generation from selling of DOC also attributed 23% in 2011 whereas Commercial Egg sale through different buyers as well as super shops also attributed 8% of revenue of CPBL in 2011 compared to 3.1% in 2010. The Company also observed working capital pressure due to the nature of high inventory level which should be maintained to buffer production and stock. Increase in avg. inventory processing period in 2011 resulted weak liquidity indicators in 2011 compared to previous years. The Company injected BDT 500.00 million paid up capital in 2011 from the share money deposit it carried from 2009; however, borrowed fund outstanding in 2011 increased by 2.8x from 2010 as expressed by its borrowed fund/shareholders equity ratio was 1.56x in 2011 (2010: 0.58x) and borrowed fund/EBITDA ratio of 6.47x (2010: 1.06x). Such increment in the leverage position heightened its financial expenses and throttled its coverage position below 2.0x in 2011.

CP Bangladesh Co. Limited

CRAB RATING SCALES AND DEFINITIONS Long Term (Corporate)

Long Ter m Rating AA A Triple A AA1 , AA2 , AA3* Doubl e A A1 , A2 , A3 Single A BBB1, BBB2, BBB3 Triple B BB1, BB2, BB3 Doubl e B B1, B2, B3 Single B CC C1, C CC2, CCC3 Triple C CC Doubl e C C Single C D (Default) quality, with mi ni mal credit risk. Compani es rated i n t his category have very strong capacity to meet financial commit ments. These compani es are judged to be of very high quality, subject to v ery low credit risk. Compani es rated in this cat egory have strong ca pacity to meet fina ncial commit ment s, but are susceptibl e to the a dverse effect s of changes in circumsta nces a nd economic conditions. These compani es are judged to be of hi gh quality, subject to low credit risk. Compani es rated i n this cat egory have adequate ca pacity to meet financial commit ments but more susceptibl e to adverse economic conditions or changing circumstances. These compa ni es are subject t o moderate credit risk. Such compani es possess certain speculative characteristics. Compani es rated in thi s category have ina dequat e capacity t o meet fi nancial commit ments. Have major ongoi ng uncertainties and exposure to adverse business, fina ncial, or economi c conditions. These compani es have speculative element s, subj ect to substantial credit risk. Compani es rated in thi s category have weak ca pacity to meet financial commit ments. These compani es have speculative el ements, subject to hi gh credit risk. Compani es rated in this cat egory have very weak capacity t o meet fina ncial obli gations. These compani es have very weak standing and are subject to very high credit risk. Compani es rated i n thi s cat egory have extremely w eak ca pacity to meet financial obligations. These c ompani es are hi ghly speculative and are lik ely in, or very near, defa ult, with some prospect of recovery of princi pal and i nterest. Compani es rated i n thi s category are highly vulnerable to non- pay ment, have pay ment arrearages allow ed by the t er ms of the document s, or subject of bankrupt cy petition, but have not experienced a pay ment default. Pay ment s may have been suspended in accordance with t he instrument 's t er ms. These compani es are typically in default, wit h littl e prospect for recovery of princi pal or interest. D rating will also be used upon the fili ng of a ba nkruptcy petiti on or si milar action if pay ments on a n obligati on are jeopardiz ed. Defi nition Compani es rated in t his category have extremely strong capacity to meet financial commit ments. These compani es are judged to be of t he hi ghest

* Not e: CRAB a ppends numerical modifi ers 1, 2, a nd 3 to each generic rating classification from AA through CCC . The modifi er 1 i ndi cates t hat the obligation ranks in the hi gher end of
its generic rating category; the modifi er 2 i ndi cates a mid-range ranking; and the modifier 3 indicat es a ranking i n the l ow er end of that generic rating cat egory.

LONG-TERM RATING: LOANS/FACILITIES FROM BANKS/FIS

(All loa ns/faciliti es with original mat urity exceedi ng one year) RATI NGS AA A (Lr) (Tripl e A ) Highest Safety AA (Lr)* (Double A) High Safety A (Lr) A dequate Safety BBB (Lr) (Tripl e B) Moderate Saf ety BB (Lr) (Double B) I nadequat e Safety B (Lr) High Risk CC C (Lr) V ery Hi gh Ri sk CC (Lr) Extremely Hi gh Risk C (Lr) Near to Default D (Lr) Defa ult DEFI NITIO N Loans/faciliti es rated A AA (Lr) are judged to off er the hi ghest degree of saf ety, with regard to ti mely pay ment of financial obligations. Any adv erse changes in circumstances are unlik ely to aff ect the pay ment s on the l oan facility. Loans/faciliti es rated A A (Lr) are judged to off er a high degree of safety, with regard to ti mely pay ment of fina ncial obligations. They diff er only margi nally in saf ety from AAA (Lr) rated faciliti es. Loan/facilities rated A (Lr) are judged t o off er an a dequate degree of safety, wit h regard to ti mely pay ment of fina ncial obli gations. How ever, changes in circumstances ca n adversely affect such i ssues more t han those i n the hi gher rating categories. Loans/faciliti es rated B BB (Lr) are judged to offer moderate safety, with regard to ti mely pay ment of financial obligations f or the present; howev er, changing circumstances are more lik ely to l ead t o a w eak ened capacity to pay int erest a nd repay princi pal tha n for issues i n hi gh er rating cat egories. Loans/faciliti es rated B B (Lr) are judged to carry inadequate safety, with regard to ti mely pay ment of financial obli gations; t hey are l ess lik ely to default in the i mmediat e fut ure t han i nstruments in l ow er rating cat egories, but an adverse change in circumstances could lea d t o ina dequate capacity to ma ke pay ment on financial obligations. Loans/faciliti es rated B (Lr) are judged to have hi gh risk of default; w hil e currently financial obli gations are met, adverse busi ness or economic conditions w oul d l ead t o lack of ability or willingness to pay int erest or princi pal. Loans/faciliti es rated C C C (Lr) are judged t o have factors present t hat mak e t hem very highly vulnerabl e to default; ti mely pay ment of fi nancial obligati ons is possibl e only if favorable circumstances continue. Loans/faciliti es rated C C (Lr) are judged to be extremely vulnerabl e to default ; ti mely pay ment of fi nancial obligations i s possibl e only through ext ernal support. Loans/faciliti es rated C (Lr) are currently highly vulnerable to non-pay ment, having obli gations wit h pay ment arrearages allowed by the t er ms of the documents, or obligations t hat are subject of a ba nkruptcy petition or si milar action but have not experienced a pay ment default. C is typically in default , with little prospect for recovery of princi pal or int erest. C (Lr) are typically in default, with littl e prospect for recover y of principal or interest. Loans/faciliti es rated D (Lr) are in default or are expect ed to default on schedul ed pay ment dat es.

* Not e: CRAB a ppends numerical modifi ers 1, 2, a nd 3 to each generic rating classification from AA through CCC . The modifi er 1 i ndi cates t hat the obligation ranks in the hi gher end of
its generic rating category; the modifi er 2 i ndi cates a mid-range ranking; and the modifier 3 indicat es a ranking i n the l ow er end of that generic rating cat egory.

SHORT-TERM CREDIT RATING: LOANS/FACILITIES OF BANKS/FIS

(All loa ns/faciliti es with original mat urity within one year) DEFI NITIO N ST- 1 Highest Grade ST- 2 High Grade ST- 3 Adequate Grade ST- 4 Marginal ST- 5 Inadequate Grade ST- 6 Low est Grade This rating indicat es t hat the degree of safety regarding ti mely pay ment on the l oans/facilities is v ery strong. This rating i ndi cates t hat the degree of safety regarding ti mely pay ment on the loans/faciliti es is strong; how ever, the relative degree of safety is low er than that for issues rated higher. This rating i ndi cates that the degree of saf ety regarding ti mely payment on the loans/faciliti es i s adequate; how ever, the i ssues are mor e vulnerable to the a dverse eff ects of changing circumstances t han i ssues rated i n t he two higher categories. This rating i ndi cates that t he degree of safety regarding ti mely pay ment on t he loa ns/faciliti es is marginal; and the i ssues are quit e vulnerable to t he adverse effects of changi ng circumstances. This rating i ndi cates that the degree of safety regarding ti mely pay ment on the l oans/faciliti es i s mini mal, and it is li kely t o be adv ersely affected by short-ter m a dversity or less favorable conditions. This rating indicat es t hat the l oans/facilities are expect ed t o be in default on maturity or is in d efault.

Copyright 2012, CREDIT RATING AGENCY OF BANGLADESH LIMITED ("CRAB"). All rights reserv ed. ALL INFORMATION CONTAINED HER EIN IS PR OTECT ED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITT ED, TRANSFER RED, DISSEMINAT ED, REDIST RIBUTED OR RESOLD, OR STORED FOR SUBSEQU ENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT CRABS PRIOR WRITTEN CONSENT. All information contained herein is obtain ed by CRAB from sources believ ed by it to be accurate and reliab le. Becaus e of the possibility of human or mech anic al error as well as other factors, however, such information is prov ided as is without w arranty of any kind and CRAB, in particular, makes no rep res ent ation or warranty, express or imp lied, as to the accuracy, timelin ess, comp let enes s, merch ant ability or fitnes s for any particular purp ose of any such info rmation. Under no circu mst anc es shall CRAB have any liability to any person or entit y for (a) any loss or damag e in whole or in part cau sed by, result ing from, or relatin g to, any error (negligent or otherwise) or other circumstanc e or conting ency with in or outside th e control of CRAB or any of its directors, officers, e mploy ees or agents in conn ection w ith the procurement, collec tion, comp ilat ion, analysis, int erp ret ation, communication, publicat ion or d eliv ery of any such information, or (b) any direct, ind irect, special, cons equent ial, co mpen satory or inc ident al d amages what soev er (including w ithout limitatio n, lost profits), even if CRAB is advised in advanc e of the possibility of such damag es, result ing from the use of or inability to use, any such information. The cred it ratings and fin ancial report ing analysis obs erv ations, if any, constituting part of the informat ion contain ed herein are, and must be constru ed solely as, statement s of opinion and not statements of fact or recommendat ions to purchas e, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLET ENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFOR MATION IS GIVEN OR MADE BY CRAB IN ANY FORM OR MANNER WHATSOEVER. Each rating or oth er opin ion mu st be w eigh ed solely as on e factor in any investment decision made by o r on beh alf of an y user of the info rmation cont ain ed herein, and each such us er must ac cordin gly make its own study and ev aluat ion of each securit y and of each issu er and gu aranto r of, and each provider of credit support for, each s ecurit y that it may consid er purch asing, holding or sellin g.

CRAB I CRAB Ratings on Corporate Credit Digest I 31 March 2013

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