Fitch Affirms Embotelladora Andina's IDRs at 'BBB+'; Outlook Stable

miércoles 27 de julio de 2016 12:19 GYT
 

(The following statement was released by the rating agency) CHICAGO, July 27 (Fitch) Fitch Ratings has affirmed the ratings of Embotelladora Andina S.A. (Andina) as well as its senior unsecured notes and national scale ratings. A full list of rating actions follows at the end of this press release. KEY RATING DRIVERS Andina's ratings reflect its solid operating profile backed by strong brand recognition of Coca-Cola, well-diversified operational geographies across Latin America, as well as the relatively stable dynamics of the beverage industry. These factors have enabled Andina to maintain its stable performance and cash flow generation despite the weak macroeconomic environment in the region, and have allowed the company to reduce leverage quickly. Negatively, the ratings are tempered by Andina's increased exposure to Brazil's weak macroeconomic environment, and by the pricing volatility of its main raw materials such as sugar and oil. Strong Business Position & Geographical Diversification The company is the third largest Coca-Cola bottler in Latin America in terms of volume and the seventh largest Coca-Cola bottler worldwide. Andina's business is also well diversified across Latin America. Chile is the largest contributor to EBITDA at 34% (28% of sales) as of the LTM ended March 31, 2016, followed by Brazil (30% of EBITDA, 31% of sales), Argentina (25% of EBITDA, 33% of sales), and Paraguay (11% of EBITDA, 7% if sales). Brazil's contribution increased following the acquisition of Companhia de Bebidas Ipiranga in 2013; the proportion of sales and EBITDA from Brazilian operations has declined as a result of soft consumption caused by the weak macroeconomic environment. Stable Performance Expected Despite Slowdown Fitch expects 2016 to be a challenging year for the company, mainly due to continued currency volatility and soft consumption in Brazil. Volumes will likely show some contraction as non-CSD products will continue to partially offset any decline in CSD volumes. Credit metrics should remain stable. Andina has benefited from cross-currency swaps taken on its USD575 million senior unsecured bond which contributed to a net leverage ratio below 2.0x in 2015. Coca-Cola's strong brand recognition, the relatively stable dynamics of the beverage industry and its diversified operations have enabled Andina to maintain strong performance and cash flow generation in the midst of the weak regional environment. The company has been able to pass through cost increases to the end consumer. The CSD category comprised 80% of Andina's sales volumes in 2015. It experienced some volume contraction due to colder temperatures and consumer preferences towards healthier alternatives. Andina's non-CSD categories, juices and waters, posted volume increases but were not enough to offset the CSD decline. Consolidated volumes declined 1% in 2015 from 2014 to 820 million unit cases (UC). Volumes were 814 MUC as of the LTM ended March 31 2016. EBITDA improved to CLP316 billion in 2015 from CLP290 billion in 2014. Improving Net Leverage Fitch expects Andina's net leverage to remain close to 1.5x for the next two years, considering the effect of the cross-currency swaps. The company decreased capex and dividend payouts from 2014 - 2015 to reduce leverage ratios which had peaked above 2.4x following three acquisitions from 2012-2013. Andina's leverage ratios have benefited from a cross-currency swap on its international bond that reduced total debt by about CLP181 billion in 2015, in accordance with Fitch's methodology. As of YE2015 gross and net leverage ratios were 2.0x and 1.4x, respectively, in line with Fitch's expectations. As of the March 31 LTM, these ratios were 2.1x and 1.5x. Increased Exposure to Brazil In terms of volume, the company is the third largest bottler of Coca-Cola products in Brazil. Andina's exposure to Brazil has increased in part due to its acquisition of Ipiranga. Brazil accounts for 35% of consolidated sales volumes as of the March 31 LTM, 31% of revenues, and 30% of EBITDA. Increased exposure to Brazil's and/or Argentina's ceiling could place additional pressure on the company's ratings. In 2016 the majority of Andina's estimated capex of USD230 million will go towards its new plant in Duque de Caxias. Once completed in 2017, Brazilian capacity will increase by 35%. The new plant will produce mineral water and have a line of returnable plastic bottles, which will allow the company to price products at a lower level. Equity Rating Andina's equity rating is based on its long track record in the Santiago Stock Exchange and its adequate market cap, free float, and high liquidity of 'B' shares. The rating is constrained by the moderate liquidity of 'A' shares and lower voting rights of 'B' shares. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for Andina include the following: --Revenue decline in 2016 primarily due to exchange rate volatility and some volume contraction in Brazil with growth in the low single-digits for 2017-2019; --Price increases at or slightly below inflation; --EBITDA margin averaging 17.5% 2016-2019; --Capex of around USD230 million in 2016 and 2017 in accordance with company guidance; --Capex drops to 4.5% of revenues in 2018 and 2019 to cover maintenance; --Dividends of USD85-90 million in 2016 and 2017. RATING SENSITIVITIES A negative rating action could occur if credit metrics deteriorate and result in a net leverage above 2.0x for a sustained period of time. Increased exposure to Brazil and/or Argentina ceiling could place additional pressure on the company's ratings. While Andina's ratings do not explicitly factor in support from The Coca-Cola Company, a decrease in its participation in the ownership structure would be viewed negatively. A positive rating action could result from a net leverage ratio below 1.5x for a continued period in addition to a stabilization of Brazil's macroeconomic environment. LIQUIDITY Andina reported cash of CLP189 billion at YE 2015 and CLP185 billion as of the LTM ended March 31, 2016. Short-term debt amounted to CLP62 billion and CLP58 billion over the same period. As of March 31, 2016, Andina had available short-term credit lines equivalent to CLP188 billion; the aggregate unused portion of the lines was CLP120 billion. As of Dec. 31, 2015 Andina had total debt of CLP827 billion (USD1.2 billion). The bulk of this is related to Andina's issuance of USD575 million in September 2013 to finance its acquisition of Ipiranga. The company has entered into cross-currency swaps to Brazilian reais and Chilean UFs for this bond. After the swap, approximately 59% of total debt is denominated in Chilean UFs, 39% in Brazilian reais, 1% in Argentine pesos and 0.4% in U.S. dollars. In addition, Andina also uses exchange rate hedging agreements from time to time to cover obligations from the acquisition of fixed assets, raw material purchases, and/or to cover interest in short- and long-term debts. FULL LIST OF RATING ACTIONS Fitch has affirmed the following ratings: Embotelladora Andina S.A. --Foreign currency and local currency long-term Issuer Default Ratings at 'BBB+'; --Senior unsecured notes at 'BBB+'; --National scale long-term rating at 'AA(cl)'; --National equity rating at 'Primera Clase Nivel 2'; --National senior unsecured debt at 'AA(cl)'. Contact: Primary Analyst Cristina Madero Associate Director +1-312-368-2080 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 Secondary Analyst Rodolfo Schmauk Associate Director +56 2 2499 3341 Committee Chairperson Joe Bormann, CFA Managing Director +1-312-368-3349 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015) here National Scale Ratings Criteria (pub. 30 Oct 2013) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1009547 Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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