Dec 14 - Fitch Ratings has affirmed the following ratings for 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)';
--Senior Notes for USD500 million at 'A'.
The Rating Outlook is Stable.
Philippines Acquisition Credit Neutral
KOF's ratings incorporate the acquisition of 51% equity interest in the
operations of Coca-Cola Bottling Philippines Inc. (CCBPI) owned by KO. The total
value of the transaction was USD688.5 million and will be financed with short-
and medium-term bank loans of USD700 million. Fitch considers that the debt
funded transaction is manageable given the company's solid financial profile and
strong credit metrics. On a pro forma basis, Fitch estimates a total debt to
EBITDA of around 1.1x and a net debt to EBITDA close to 0.7x.
The structure of the transaction contemplates a call option for KOF to acquire
the remaining 49% equity interest at any time during the following seven years,
and also includes a put option for KOF to sell back the 51% equity stake to KO
during the sixth year. KOF will have full control of the day-to-day operations
of CCBP and will account its results under the equity method.
In Fitch's opinion this transaction is consistent with KOF's growth strategy to
enter into new geographies with attractive economic growth prospects and share
similar demographic and cultural characteristics with its Latin American
The KOF's ratings reflect the company's substantial free cash flow generation,
solid financial position, ample financial flexibility and strong business
profile. The foreign currency IDR is rated above Mexico's country ceiling of
'A-', the country where the company is domiciled, given that 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 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.
The company's diverse revenue stream from its bottling operations outside
Mexico, provides with cash flow and currency diversification. Fitch believes
that a geographical diversified revenue stream lowers business risks and cash
flow volatility. For the latest 12 months (LTM) ended Sept. 30, 2012, Fitch
estimates that operations from South American accounted around 61% of total
volume, 55% of total sales and 53% of EBITDA.
Fitch's long term expectation is that KOF's credit metrics remain solid. For the
latest 12 months (LTM) ended Sept. 30, 2012, the company's total debt to EBITDA
and net debt to EBITDA were 0.8x and 0.4x, respectively, while EBITDA to gross
interest expenses was 14.3x. For this period the total amount of debt was
MXN20.6 billion out of which 52% corresponded to debt issued in the capital
markets and 48% to bank loans. KOF's debt exposure to currency risk is mitigated
by maintaining a net dollar debt exposure below USD 700 million.
KOF has ample liquidity. As of Sept. 30, 2012, the company had MXN11.1 billion
of cash and marketable securities and annual free cash flow generation (FCF) of
around MXN3 billion. This compares favorably with short term maturities of
approximately MXN5 billion in 2013, considering the amount due from the
transaction of Philippines.
KOF's operative performance continued with sales and volume growth due to
acquisitions and organic growth, while profitability was impacted mainly by
higher sweetener costs and increased operating expenses. The company's LTM net
revenues at Sep. 30, 2012 were MXN144 billion which represented an increase of
25% as compared to the same period of 2011. The LTM EBITDA margin at Sept. 30,
2010 was 18% against 20% for the same period of 2011.
What could trigger a rating action?
Downward movements in the ratings could be triggered by a change in the
company's long term 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
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. 8, 2012;
--'National Ratings - Methodology Update', Jan. 19, 2011;
--'Rating Corporates Above the Country Ceiling', Jan. 27, 2012.
Applicable Criteria and Related Research:
Corporate Rating Methodology
National Ratings Criteria
Rating Corporates Above the Rating Ceiling