Agro-processing

The Company

 Established in 1956, SIFCA Group took over Société Africaine de Plantations d’Hévéas (SAPH) through its subsidiaries OMNIPAR and SIPH in 1999. The rubber industry leader in Africa, SAPH has a production capacity of 180,000 tonnes per year and five main integrated farm units located in Bettie, Rapides-Grah, Toupah/Ousrou, Bongo and Yacoli. Each of these units has an industrial plantation, factory (except Bettie), workers’ housing and dedicated infrastructure. The company supplies natural rubber from its own industrial plantations (24,000 ha), and from outgrowers. On the marketing side, SIPH guarantees the purchase of all its production sold outside the West Africa Economic and Monetary Union. SAPH’s production represented 70% of SIPH’s total purchases in 2015.

Following a good year in 2011, when rubber prices hovered at $4.5 per kg, the rubber sector experienced challenging years. In this difficult period, revenues decreased by 50% in 2015 to CFA97.45bn (€146.2m) compared to 2011, despite the positive effects of volume increase (+28% to 124,098 tonnes) over the same period. Indeed, rubber prices were at $1.37 per kg in 2015. Despite cost-control policy, earnings before interest, tax, depreciation and amortisation (EBITDA) were impacted by the introduction of new taxes (tax on the turnover, property tax and abolition of value-added tax exemption) in the sector by the government. As a result, EBITDA dropped by 88% to CFA7.82bn (€11.7m) compared to 2011.

Moreover, the huge increase in total debts – from CFA419.84m ($630,000) in 2011 to CFA46.38bn (€69.6m) in 2015 – due to the investment programme and an increase in working capital requirements, negatively affected financial charges. Thus, SAPH recorded a loss of CFA1.79bn (€2.7m) against income of CFA45.63bn (€68.5m) in 2011.

Outlook

 The end of the investment programme allowed SAPH to expect a production of 160,000 tonnes in 2016. This volume should mitigate the fall in prices and improve results. Although the company has industrial plantations, volume growth will mainly be supported by a surge in the outgrowers’ production. In fact, the rejuvenation programme of industrial plantations is expected to lead to a relative stable supply of natural rubber crops over the next five years.

The majority of the players in the Ivorian rubber sector are members of an industry association, Apromac. The three main leaders of the sector are SAPH, Société des Caoutchoucs de Grand-Béréby and Compagnie Heveicole de Cavally. The rest of the market is shared among 11 other competitors, mostly small or medium-sized companies. The majority of these firms are dependent on outgrowers’ production, since they do not own industrial plantations. Consequently, these players are close to bankruptcy, as the fall in rubber prices has had a negative impact on their margins.

As the sector cycle is at its lowest level and as the prospects for growth are good, it is a good moment to buy this stock in order to take advantage of the cycle change.

Development Strategy

 SAPH’s strategy focuses on five main points:

• Increase production capacity to better deal with the decline in prices. Indeed, the end of the investment programme allowed to reach a production capacity of 180,000 tonnes in 2015;

• Reinforce its partnership with outgrowers, since their production of natural rubber is crucial for SAPH (around 80% of total rubber);

• Reduce or remove the premium paid on the purchasing price of natural rubber to improve margins. The raw material market is marked by natural rubber growth in the country;

• Improve production quality by rejecting cumulative tapping rubber. This strategy aims to improve SAPH’s selling price; and

• Invest in enterprise resource planning software to better control the operating cost.

 

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The Report: Côte d'Ivoire 2017

Capital Markets chapter from The Report: Côte d'Ivoire 2017