Fitch Affirms The Central America Bottling Corporation at 'BB '; Outlook Stable
OREANDA-NEWS. Fitch Ratings has affirmed The Central America Bottling Corporation's (CBC) ratings as follows:
--Foreign currency long-term Issuer Default Rating (IDR) at 'BB+';
--Local currency long-term IDR at 'BB+';
--USD300 million senior unsecured notes due in 2022 at 'BB+'.
The Rating Outlook is Stable.
CBC's ratings reflect the company's business position as an anchor bottler of the PepsiCo system with operations in Central America, the Caribbean, Ecuador and its recent acquisition in Peru. The company has a diversified product portfolio of PepsiCo brands as well as proprietary brands across its franchised territories, combined with a broad distribution network. The ratings also benefit from the company's good operating performance, stable leverage metrics and adequate liquidity. CBC's ratings are constrained by higher than historical debt levels related to mergers and acquisitions (M&A) and investment projects. In addition, the company's operations are exposed to the sovereign ratings where it operates and the volatility of prices in its main raw materials.
KEY RATING DRIVERS
Leading Position in Core Markets
Fitch believes CBC's brand portfolio, distribution network, and management's abilities to design and execute commercial strategies will support its business position in the future. The company has maintained relatively stable market share positions in key territories as Guatemala and Jamaica where the company has the leading brand in the carbonated soft drink category. In addition, CBC's non-carbonated beverages portfolio, particularly water, juices and nectars, isotonics and tea, hold important positions in most of its markets.
Positive Operating Performance
Fitch expects CBC's revenues to grow in the mid- to high-single digits in 2015-2016 due mainly to its acquisition of PepsiCo bottling operations in Peru from Ambev in the second semester of 2015 and, in a lesser extent, to organic growth. During the first half of 2015, the company's total volume increased 5% to 205 million unit cases, while net sales increased 10% to USD680 million, when compared to the same period of 2014. EBITDA margin was relatively stable at 11.7%. These figures exclude the Peruvian operations that will be consolidated during the second half of 2015.
Fitch forecasts that CBC will maintain a negative free cash flow (FCF) generation in 2015 after planned capital expenditures of USD87 million and dividends payments of USD25 million. While this is contrary to the agency's previous FCF expectation, the variation will come mainly from additional capex to improve the operations in Peru. Fitch expects the company to generate positive FCF over the medium term due to lower capex and stable dividend payments starting 2016. The forecasted positive FCF generation should support the company's ability to pay down debt.
CBC's leverage should remain relatively stable in the next 18 to 24 months despite the recent acquisition of Peru. For the acquisition of the Peruvian operations and the planned capex the company will obtain USD60 million of additional debt that will result in leaving its total debt around USD520 million by year end 2015. Fitch projects for 2015 a total debt to EBITDA and net debt to EBITDA close to 2.8x and 2.5x, respectively, including half year results of Peru. For 2016 the company's leverage should gradually strengthen in the absence of strategic acquisitions. For the last 12 months as of June 30, 2015, the company's estimated total debt to EBITDA and net debt to EBITDA were 2.9x and 2.5x, respectively.
Fitch also considers that CBC exposure to USD denominated debt is manageable. Approximately 78% of CBC's total debt million was dollar denominated at the end of June 2015. The company does not contemplate to hedge its foreign currency debt service as it generated around 55% of its revenues in U.S. dollars and maintained approximately 45% of its cash balance in U.S. dollars as of June 30, 2015.
Exposure to Guatemala's Sovereign Ratings
CBC has exposure to the risks associated with the economic and political environment of the countries where it operates. Guatemala ('BB'/Outlook Stable) is CBC's main market in terms of sales and EBITDA generation and the company's operating performance is likely to depend on the stability and economic development of this country. While the last sovereign downgrade in June 2014 resulted in a downgrade of the country ceiling of Guatemala to 'BB+' from 'BBB-', it did not impact the ratings of CBC, given its stable credit profile and access to cash flow generation from dollar-based economies (Ecuador, El Salvador and Puerto Rico), further deterioration of the country's ratings will likely result in a negative rating action.
Fitch's key assumptions within the rating case for CBC include:
--Revenue growth in mid- to high single-digit in 2015-2016 including acquisition of Peru;
--EBITDA margins around 13% in 2015 and 2016;
--Negative FCF generation in 2015 and positive over the medium term;
--Total debt to EBITDA trending down below 2.5x by 2016, excluding acquisitions.
The ratings of CBC could be negatively pressured by the following factors: a downgrade in Guatemala's country ceiling, deterioration of its operating results, negative FCF generation, or significant debt-financed acquisitions that result in a total debt to EBITDA above 3x on a sustained basis.
Fitch does not foresee positive ratings actions for CBC in the mid-term; however, the combination of lower leverage ratios, better operating performance, solid FCF generation across the cycle and cash flow generation from investment-grade countries will be considered positive to credit quality.
CBC's liquidity is manageable given its current cash balances of USD69 million and USD95 million of short-term debt as of June 30, 2015. The company has also a funds from operations (FFO) capacity of around USD100 million annually and has non-committed credit lines of around USD30 million. With debt amortization of USD40 million in 2016, USD23 million in 2017, USD25 million in 2018 and USD24 million in 2019, Fitch believes CBC has financial flexibility to face its debt profile.