SP base-case operating scenario
We anticipate that Consol will achieve high-single-digit revenue growth in the
fiscal year ending June 30, 2012, largely as a result of selling-price
increases and fairly flat volumes. We forecast that volume trends will improve
somewhat in fiscal 2013. We base our assumptions on our opinion that growth in
demand for glass containers in South Africa should continue to be broadly in
line with local GDP growth rates, which we estimate at 2.7% in 2012 and 3.6%
in 2013. (For more details, see “South Africa (Republic of),” published March
30, 2012, on RatingsDirect on the Global Credit Portal.)
Consol is generally able to offset the adverse effect of energy and raw
material cost increases through its annual selling-price adjustments and
continues to focus on cost controls and efficiency improvements. As such, we
forecast that EBITDA margins will remain more than 30% in fiscal years 2012
and 2013, which we consider to be superior compared with those of
glass-container manufacturers in Europe and the U.S. Consol’s large and
defensible market shares, improving utilization rates (as spare capacity at
the Nigel facility declines), good operating efficiency, and ability to
deliver large volumes, should support the company’s operating margins over
time.
SP base-case cash flow and capital-structure scenario
Consol’s credit measures remain in line with our guidelines for the ratings.
In the 12 months to Dec. 31, 2011, Consol’s Standard Poor’s-adjusted debt to
EBITDA was about 5.3x and adjusted funds from operations (FFO) to debt was
about 11%. For both calculations we treated the interest-accruing shareholder
loan as debt.
We anticipate that metrics will continue to improve now that the new plant is
operational and generating cash flows. In our view, Consol will continue to
generate sufficient FFO (after cash interest payments) to more than cover
maintenance capex during fiscal years 2012 and 2013. Our base-case scenario
assumes capex of South African rand (ZAR) 600 million in fiscal 2012, and
about ZAR500 million in fiscal 2013, as well as a working capital outflow of
about ZAR300 million in fiscal 2012 and ZAR150 million in fiscal 2013.
Liquidity
We assess Consol’s liquidity as “adequate” under our criteria. We anticipate
that liquidity sources will exceed uses by more than 1.2x in fiscal years 2012
and 2013. Consol’s debt maturity profile includes bullet repayments of medium-
to long-term debt.
Continued…
