MONTERREY, Mexico--(BUSINESS WIRE)--Fitch has affirmed the following credit ratings of Coca-Cola Femsa S.A.B. de C.V. (KOF):
--Foreign Currency Issuer Default Rating (IDR) at 'A';
--Local
Currency IDR at 'A';
--National Scale Long Term Rating at
'AAA(mex)';
--National Scale Short Term Rating at 'F1+(mex)';
--USD500
million Senior Notes Due 2020 at 'A'
The Rating Outlook is Stable.
The rating actions reflect KOF's substantial free cash flow generation, solid financial position, and strong business profile. The FC IDR is rated above Mexico's country ceiling of 'A-', country where the company is domiciled, as in Fitch's opinion transfer and convertibility risks are mitigated by the company's strategic relationship with The Coca-Cola Company (KO, rated 'A+'/Stable) and the explicit and implicit financial support KOF has received from KO. In addition, the ratings consider the geographical diversification of the EBITDA generated outside Mexico, as well as its strong credit profile.
KOF's ratings incorporate the mergers of the bottling operations of Grupo Tampico, S.A. de C.V. (Grupo Tampico), Corporacion de los Angeles, S.A. de C.V. (Grupo CIMSA) and Grupo Fomento Queretano, S.A. de C.V. (Grupo Foque). The total value of the mergers was MXN26.9 billion and represented the largest investment of KOF since Panamco in 2003. Fitch considers that the mergers will improve the company's business position through the integration of contiguous territories and operations, reaching expected synergies of around MXN760 million at EBITDA level in the following 18 to 24 months. Additionally, these transactions were primarily funded with equity and KOF balance sheet will assume MXN6 billion of additional net debt which, in Fitch's view, KOF has enough financial flexibility to incorporate without having a significant effect in its credit profile.
KOF's ratings are underpinned by its solid business position as the largest bottler in the world of Coca-Cola products with operations across Latin America. Despite the strong competition present in the industry, the company's profitability margins are among the highest in the business, driven by excellent product segmentation, superior execution at the point of sale and appropriate pricing architecture for its broad portfolio of products
KOF's presence in Latin America provides the company with geographical diversification of revenues and EBITDA generation that lowers business risk and cash flow volatility. For the latest 12 months (LTM) ended Sept. 30, 2011, Fitch estimates that operations outside Mexico accounted around 63% of total sales, 49% of total volume and 60% of total EBITDA. The effect of the recent mergers will not change significantly the importance of the foreign operations.
KOF's credit metrics remain solid within the rating category. For the latest 12 months (LTM) ended Sept. 30, 2011, the company's total debt to EBITDA and net debt to EBITDA were 1.0 times (x) and 0.2x, respectively, while EBITDA to gross interest expenses was 13.7x. On a pro forma basis for this same period and incorporating the full effect of Grupo Tampico, Grupo CIMSA and Grupo Foque mergers, Fitch estimates a total debt to EBITDA of around 1.1x and a net debt to EBITDA close to 0.4x.
Free cash flow (FCF) generation of the company is strong supported by its business position and operating margins. Fitch expects for 2011 a FCF generation (defined as cash flow from operation less capital expenditures and dividends) of approximately MXN2.5 billion. As of Sept. 30, 2011 LTM EBITDA margins had a slight improvement to 20.1% from 19.7% when compared to the same period of 2010. Fitch estimates that EBITDA margins will remain stable as main raw material cost (sweetener and PET) and foreign exchange volatility will be partially offset by ongoing productivity efficiencies and expected synergies coming from its mergers.
KOF has ample liquidity. As of Sept. 30, 2011, the company had MXN18.6 billion of cash and marketable securities compared to short term obligations of MXN4.9 billion. In addition, the company has ample access to bank loans and capital markets. For the following months, Fitch expects KOF to pay the assumed debt related to the mergers.
KOF's operative performance has been solid with sales and volume growth. The company reported LTM net revenues of MXN115.2 billion as of Sept. 30, 2011 which represents an increase of 10% as compared to the same period of 2010. Excluding Venezuela, all the territories reported positive volume growth that combined with higher average selling prices, contributed mainly to this increase.
Downward movements in the ratings could be triggered by a large debt-financed acquisition that significantly increases leverage and results in long term changes to the company's capital structure. Negative rating actions could also result from a sustained deterioration of its free cash flow generation, driven by operating pressures or an adverse economic climate, or a lack of support from KO.
Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating
Methodology' (Aug. 12, 2011);
--'Rating Corporates Above the
Country Ceiling' (Jan. 5, 2011).
Applicable Criteria and Related Research:
Corporate Rating
Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
Rating
Corporates Above the Country Ceiling
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=594985
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