CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed the ratings of Embotelladora Andina S.A. (Andina) as follows:
--Foreign currency and local currency long-term Issuer Default Rating (IDR) at 'A-';
--Senior unsecured notes at 'A-';
--National scale rating at 'AA(cl)';
--Senior unsecured local notes at 'AA(cl)';
--National equity rating at 'Primera Clase Nivel 2'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
Business Position and Diversification
Andina is the third largest Coca-Cola bottler in Latin America in terms of volume and the seventh largest Coca-Cola bottler worldwide. The company has solidified its operations in Argentina, Brazil, Chile and Paraguay through its recent acquisitions. Brazil is the largest contributor to sales and EBITDA at 39% as of the first quarter of 2014 (1Q'14), followed by Chile (29% of sales, 33% of EBITDA), Argentina (25% of sales, 18% of EBITDA), and Paraguay (7% of sales, 10% of EBITDA).
Operational Performance
Consolidated volumes increased 28% in 2013, reaching 763 million unit cases (UC); volumes were 222 million UC as of 1Q'14. EBITDA was USD514 million in 2013; this is an 18% increase over 2012. Operations in 2013 improved markedly due to a full year of Kopolar results and three months of Ipiranga. Not considering these acquisitions, sales volumes increased 2% in 2013 and sales increased 3%. Most of the increase in volumes was related to non CSD products. Cost pressures from higher distribution expenses in Chile and increased competition were partly offset by price increases and lower sugar costs.
High Net Leverage
The company's recent debt financed USD510 million acquisition of Brazilian company Companhia de Bebidas Ipiranga pushed net leverage up to 2.3x as of the latest 12 months (LTM) March 31, 2014. This is significantly higher than Andina's average net debt-to-EBITDA ratio of 0.12x maintained from 2008-2012. In recent years Andina has pursued a more aggressive growth strategy; Andina acquired Companhia Bebidas Ipiranga in October 2013, Embotelladoras Coca-Cola Polar (Kopolar) in October 2012 and Sorocaba Refrescos S.A. (Sorocaba) in August 2012. Fitch expects the company to lower net leverage to below 2.0x by the end of 2014 and to 1.5x within the next 24 months.
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 recent acquisitions. Brazil accounts for 36% of consolidated sales volumes as of March 31, 2014, 39% of revenues, and 39% of EBITDA. Increased exposure to Brazil and/or Argentina or a downgrade of Brazil's country ceiling could place additional pressure on the company's ratings.
Stable Cash Flow Generation
Andina generated USD441 million in funds from operations (FFO) as of the LTM March 31, 2014 and USD362 million in CFO. FFO compares favorably with previous years as Andina has been able to strengthen its market position. Due to the nature of its business as a cash flow generator, the company has paid out dividends upwards of 60%. Fitch expects dividend payments to be slightly lower in 2014 and 2015 as the company focuses on decreasing net leverage.
RATING SENSITIVITIES
A negative rating action could occur if Fitch believes that net leverage will remain above 1.5x during the next 18 to 24 months. A downgrade in the ratings of Brazil or Chile that results in a downgrade of their respective country ceilings could lead to a negative rating action.
A positive rating action is not likely in the near term given the company's current leverage. A return to historical net leverage levels for a continued period of time and a conservative financial strategy would be viewed favorably. While Andina's rating does not explicitly factor in support from The Coca-Cola Company, a decrease of Coke's participation in the ownership structure would be viewed negatively.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (May 28, 2014);
--'National Scale Ratings Criteria' (Oct. 30, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393
National Scale Ratings Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=720082
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=842871
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