Feb 5 - Fitch Ratings has affirmed Turkey-based Coca-Cola Icecek A.S.'s
(CCI) Long-term foreign and local currency Issuer Default Ratings
(IDR) and senior unsecured rating at 'BBB'. The Outlook on the IDRs is Stable.
The ratings reflect CCI's strong presence in high-growth markets, the
expectation of moderate leverage and cash flow generation, as well as the
continued operational support and oversight provided by The Coca-Cola Company
(TCCC, 'A+'/Stable). The ratings also incorporate implied support from CCI's
major shareholder (with 20.1% interest) TCCC. At the same time, due to its debt
mostly being denominated in USD and euros, CCI's balance sheet remains
vulnerable to any devaluation of the Turkish lira.
Volumes & Mix Drive Growth:
CCI has shown consistent volume growth, driven by a young population and
relatively low soft drinks penetration in its countries of operations. Volume
growth in Turkey has been easing since 2011 but remains strong in value thanks
to product mix uplift. The other countries of operation maintain very strong
Robust Financial Performance:
In 9M12 net revenue per case (+7.3% in Turkey, which represents 72% of LTM
September 2012 group revenue, and +3.5% in the international segment) increased
by 10.2% in Turkish lira terms mainly due to higher prices and a better product
and channel of sales mix. These top-line results were even stronger than the
robust +8.2% of 2011 and, thanks to lower input costs, were accompanied by
significant EBITDA growth of 42%. Overall, Fitch expects a substantial rebound
in CCI's 2012 EBITDA margin back to the top-end of its 15.3%-16.6% range of
2008-2010, recovering from the low 14.3% of 2011 and to stabilise at this level
96% of CCI's debt was denominated in dollars and euros at end- September 2012,
while revenues are generated in domestic currencies, mainly Turkish lira. The
company is consequently vulnerable to lira depreciation. Fitch calculates that
2011's 18% devaluation of the lira had an adverse effect of between 0.2x and
0.4x on CCI's net debt/EBITDA ratio, which has increased to 2.3x from 2010's
Strong Coca Cola Bottler:
CCI has diversified and grown in size, establishing itself as a strong Coca-Cola
franchisee. Its results have shown resilience to economic cycles and it has been
able to keep net debt/EBITDA under 2.5x. Although historically prone to negative
FCF due to its growth strategy, causing high capex and working-capital
absorption, CCI can swiftly move to a cash preservation mode in the event of a
downturn. In 2012 Fitch expects mildly positive FCF and, despite acquisition
spending of USD120m, net debt/EBITDA should remain at approximately 2.0x.
Ratings Incorporate Implied Support::
The ratings include embedded support from TCCC (which owns 20.1% of CCI) due to
its influence over major decisions, moderate operational and strategic ties (CCI
represents an entry point to fast-growing markets) and demonstrated support.
WHAT COULD TRIGGER A RATING ACTION?
Negative: Future developments that may, individually or collectively, lead to a
negative rating action include:
- A material permanent deterioration in FCF generation or large acquisition
leading to lease-adjusted net debt/EBITDAR above 2.5x and FFO adjusted net debt
above 2.8x-3.0x for an extended period along with FFO interest coverage below
In addition, CCI's rating could be downgraded should Fitch perceive that CCI has
become strategically or operationally less significant to TCCC.
In the event of a sharp devaluation of the Turkish lira, Fitch will look at the
group's willingness and timing to undertake any necessary cash preservation
measures such as dividend and capex reduction (as observed in 2009).
Positive: An upgrade of the IDRs is unlikely due to CCI's limited scale,
diversification and profitability against certain peers and forex exposure.
Additional information is available on 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, 'Corporate Rating Methodology', dated 8 August 2012, are
available at www.fitchratings.com.
Applicable Criteria and Related Research:
Corporate Rating Methodology