SANTIAGO, Chile--(BUSINESS WIRE)--Fitch Ratings has affirmed Embotelladora Andina S.A.'s (Andina) Issuer Default Ratings (IDRs) and outstanding debt ratings with a Stable Rating Outlook as follows:
--Foreign currency IDR at 'A';
--Local currency IDR at 'A';
--Senior unsecured Yankee bond debt due in 2027 at 'A';
--Senior unsecured UF-denominated bond line No 254 and bonds issued under the program at 'AA+(cl)';
--National Scale at 'AA+ (cl)';
--National Equity Rating at 'Primera Clase Nivel 2 (cl)'.
Andina's ratings reflect its low business risk profile and leading market position in its franchise territories. The ratings are further supported by Andina's solid financial profile due to its strong cash flow from operations (CFO) and its conservative capital structure. The ratings also incorporate risks related to its Argentine operations (rated 'B' with a Stable Outlook by Fitch) which were 16% of Andina consolidated EBITDA in 2010.
Andina's strong business position is demonstrated by leading market shares in its operating regions. Andina's average soft drink market shares during 2010 within its Chilean, Brazilian and Argentine territories, as measured by volume, were 69.1%, 57.3% and 55.3%, respectively. Andina's operations have some of the highest profit margins in the Coca-Cola system. The long-term trends are positive due to the favorable consumption growth prospects in the region.
During 2010 Andina maintained its strong cash generation capacity. Consolidated sales volumes increased by 6.7%, reaching 489.2 million of unit cases. Brazil was the key driver, as volumes increased by 9.2% in that country. Chile and Argentina also had strong performances with 6% and 3.6% sales growth, respectively. During 2010, Andina was able to raise prices and maintain healthy EBITDA margins in each market despite cost pressures arising mainly from increases in sugar costs in all markets. The appreciation of the Brazilian real versus the Chilean peso during the period led to a positive effect when converting figures from local currency to Chilean peso. As result, consolidated sales increased by 13.1%, reaching Ch$888 billion; and EBITDA increased by 9.6% reaching Ch$186 billion (using comparative IFRS figures).
Andina's operational margins declined during the first quarter of 2011 in comparison to one year earlier as a result of cost pressures leading to an 8.9% decline in EBITDA. The decrease was broad based across all markets, and driven primarily by high sugar costs. Chile was also affected by a rise in concentrate cost, plus higher labor and general expenses associated with the construction of the new plant. In Brazil, consumers switched to lower-contribution margin categories, such as juice and mineral water.
Consolidated volumes remained relatively stable during the first quarter versus the same period in 2010, growing at 1.8%. Revenues were up by 9% to Ch$250 billion due to prices increased in line with local inflation. Argentina drove volume growth with 8.7% in year-over-year growth, while volumes in Chile decreased by 2.1% and Brazil had no growth. In Chile volumes were affected by the partial sale of Vital S.A. and the absence of 2 million unit cases in sales related to this company. If this effect is isolated, then the Chilean market had 2.1% volume growth. To a lesser extent weak soft drinks volumes were a result of price increases, which were driven by an attempt by the company to pass along higher raw materials costs. The volumes in Brazil were hurt by bad weather conditions. For the rest of the year Chilean volumes are expected to grow at rate below GDP growth, while Brazil volumes should recover to a degree. Nevertheless, high inflation relative to increases in personal salaries could make growth in Brazil a little sluggish during 2011.
For 2011 EBITDA should be about Ch$180 billion, relatively stable with respect to 2010, while EBITDA margins should decline to about 19% from around 21% during 2010. As of March 2011, considering latest 12-month LTM EBITDA, Andina's credit protection measures remain solid with a total debt/EBITDA ratio of 0.5 times(x) and a positive net cash position. In the near- to medium-term, these measures should continue to be stable, as EBITDA should remain stable and debt is not expected to increase.
As of March 30, 2011, Andina had CHL$14 billion of short-term debt, consisting mainly of bank debt. Its liquidity position remains strong, with CHL$98 billion of cash and marketable securities and no significant maturities within the next couple of years. Andina had CHL$70 billion of long-term debt at the end of March 2011. This debt consists primarily of inflation-indexed, Chilean-peso-denominated bonds. These bonds amortize between 2011 and 2026. Absent an important acquisition, debt levels should remain in this range going forward.
Capex for 2011 should amount to USD250 million. The largest investments are geared toward increasing capacity in Chile and Brazil. In Chile, Andina is expected to finish a new bottling facility, which should increase current installed capacity by 40%. The company's Brazil investments are focused on increasing PET production capacity by 40%. For 2012 investments should return to historical levels and be in the range of USD150 million to USD200 million. This growth should be funded with internally generated cash flow.
During the past three years, Andina has been using extraordinary dividends to disburse nearly all of its net income. This practice is not expected to change in the future, absent a large acquisition. For 2011 Andina is expected to pay US$130 million of dividends, corresponding to approximately 60% of the prior year's net income.
Additional information is available at 'www.fitchratings.com'
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 13, 2010).
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646
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