Global Credit Ratings has accorded the above credit rating(s) on La Casera Company Limited based on the following key criteria:
The La Casera Company Plc (“La Casera”) was established in 2000 and has developed a niche position in the carbonated soft drinks (“CSDs) sector, underpinned by an extensive distribution network and large production capacity. Three substantial expansions to plant capacity between 2007 and 2011 have driven a 50% revenue CAGR over the review period, to a high of N22bn in F12. Notwithstanding, the cost of initiating new production, as well as rising administrative and marketing expenses, have seen a general operating margin decline to 8.7% in F12 (F11: 8.9%) and 8.5% in the 5-month period to May 2013 (“YTD13”). Nevertheless, operating profit reached a review period high N1.9bn in F12 and increased further by an annualised 42% to N1bn at YTD13 (40% of F13 budget). As sales are usually much higher in the second half of the year, the Company appears to be on track to meet 2013 performance targets.
Underpinned by firmer earnings and lower debt, gearing metrics have improved markedly over the review period. Net gearing amounted to just 30% at FYE12, while net debt to EBITDA registered at 42%, well below the highs of 598% and 318% at FYE09 respectively. However, total debt is anticipated to rise to N6bn at FYE13, following the N3bn Series 1 Issue and peak significantly higher at N14.8bn at FYE14 to fund expansion. Consequently, gearing metrics are forecast to remain elevated in the medium term.
While further margin compression is anticipated, budgets indicate a substantial rise in revenue and earnings over the medium term as production capacity is added. However, the debt required to finance the capex will see company risk rise and debt serviceability fall below 3x over the next few years. Stress tests indicate that an earnings underperformance of 20% would see debt serviceability fall below 2x cover. Nevertheless, La Casera has stated that forecast earnings are conservative, and that various means are at their disposal to manage underperformance.
The proposed N3bn Series 1 bonds are Senior Unsecured obligations of the Issuer. GCR has taken cognisance of the cash collection mechanism through the Debt Service Reserve Account. This offers some short term protection to bondholders, but would not prevent a default on the bonds. Thus, its features are not sufficient to warrant a notching up of the bond rating.
Upward rating migration is dependent on the continued growth in revenue and earnings. Nevertheless, an upgrade is only likely towards the end of the current capex cycle, and on condition gearing levels only peak for a short time. Conversely, recourse to debt above what is forecast and/or earnings underperformance could lead to a rating downgrade. Challenges or delays to the expansion project once underway would affect both metrics and also impact the Company’s rating.
|NATIONAL SCALE RATINGS HISTORY|
|Initial rating (Sep/2012)|
|Long term: BBB+(NG); Short term: A2(NG)|
|Last rating (Sep/2012)|
|Long term: BBB+(NG); Short term: A2(NG)|
|+234 1 462 2545|
|Sector Head: Corporates|
|+27 11 784 1771|
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
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SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
La Casera Company Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating/s has been disclosed to La Casera Company Limited with no contestation of the rating.
The information received from La Casera Company Limited and other reliable third parties to accord the credit rating included the latest available audited annual financial statements (plus four years of comparative numbers), internal and/or external management reports, full year budgeted financial statements, most recent year to date management accounts (where necessary), corporate governance and enterprise risk framework, industry comparative data and regulatory framework and a breakdown of facilities available and related counterparties. In addition, information specific to the rated entity and/or industry was also received.