Fitch Affirms Ambev's Ratings at 'A'; Outlook Stable
NEW YORK -- May 2, 2013
Fitch Ratings has affirmed the following ratings:
Companhia de Bebidas das Americas (Ambev):
--Foreign currency long-term Issuer Default Rating (IDR) at 'A';
--Local currency long-term IDR at 'A';
--National scale rating at 'AAA(bra)'.
Ambev International Finance Co. Ltd.
--Foreign currency long-term IDR at 'A';
--Unsecured notes due 2017 at 'A'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
Ambev's ratings reflect the company's continued commitment to a solid capital
structure and its very strong free cash flow generation. The ratings are
linked to the company's ultimate parent Anheuser-Busch InBev SA/NV's (AB
InBev) also rated 'A' by Fitch.
The linkages between Ambev and AB InBev's credit quality are many, and the
rating affirmation of AmBev reflects Fitch's expectations that AB InBev's pro
forma leverage (annualizing its latest acquisition Modelo's EBITDA in 2013)
will increase net debt/operating EBITDAR marginally to the range of 2.1x-2.3x
and funds from operations (FFO)-based lease adjusted net leverage to
approximately 2.5x. These projected leverage ratios are fractionally higher
than the levels previously anticipated by Fitch. AB InBev is Ambev's
controlling shareholder, owning 61.9% of total capital and 74% of the voting
shares. More than 50% of AmBev's board is made up of either members of AB
InBev's board or its management team, and AmBev represents more than 50% of AB
InBev's consolidated EBITDA.
Ambev's 'A' ratings are among Fitch's highest corporate ratings in Latin
America. They reflect the unique qualities of the company, which include
excellent business positions in several markets, continued strong operating
cash flows, and the stability and defensive nature of the beverage industry.
The ratings are higher than Brazil's country ceiling of 'BBB+' due to the
geographic diversification of the company's operations and cash flows and the
close credit linkage of Ambev and AB InBev.
Fitch expects Ambev's EBITDA to grow in the mid-single digits in 2013 and that
the company will generate free cash flow after capital expenditures (but
before dividends) of about BRL12 billion. This would allow the company to
distribute significant dividends and pursue key acquisitions without weakening
the ratings below the 'A' category.
The company generated BRL15.7 billion of EBITDA during 2012, a 19% increase
from BRL13.1 billion during 2011. During this time period, Ambev's FFO grew by
24% to BRL14.1 billion. Cash generated by working capital was a small source
of cash despite the steep increase in sales thanks to the company's continued
focus on working capital management. Cash flow from operations (CFO) increased
by 18% to BRL14.1 billion. Free cash flow after BRL3.2 billion of capital
expenditures (but before dividends) was strong at BRL11 billion. Dividend
payments were BRL5.5 billion in 2012 and BRL5 billion in the first quarter of
2013. In the first quarter of 2013 the company's revenue and EBITDA increased
by 2.4% and 2.3%, respectively, as compared to the same quarter in the prior
year. This growth was achieved despite the volume declines of 6.8%, mainly due
to a slowdown in Brazil, the company's largest market. Volumes in Brazil are
expected to decline in the low single digits in 2013.
As of March 31, 2013, Ambev had BRL4 billion of cash and market securities and
BRL3 billion of total debt, resulting in a net cash position of BRL1 billion.
As of Dec. 31, 2012, the company had approximately BRL950 million of cash in
the company's Argentinean division in the form of declared but unpaid
dividend. Ambev's FFO adjusted leverage ratio was 0.2x and its total
debt/EBITDA ratio was 0.2x. Fitch expects that the net cash position will be
maintained through 2013 and notes that the company has ample room to increase
leverage within this rating category. Beyond 2013, Fitch expects that Ambev's
total leverage should continue to remain below 1x. During the past decade,
Ambev's total debt/EBITDA ratio averaged 1x, while its net debt/EBITDA ratio
averaged 0.5x. The former ratio exceeded 2.0x only one time during the past
decade, when it reached 2.3x in 2001. Ambev's net debt/EBITDA ratio hit a high
of 1.4x in 2004.
Brazil continues to be Ambev's key market, accounting for 70% of its EBITDA in
2012. While Brazilian economic growth slowed down significantly in 2012, Fitch
expects that GDP growth will accelerate to about 3% in 2013. Beer and soft
drinks consumption however is driven by more specific factors such as weather
and disposable income, both of which affected the company's volumes negatively
in the first quarter of 2013. The slow-down in real income growth caused by
food price inflation is anticipated to continue to have a moderate negative
effect on volume sales for the rest of the year. The rise in consumer credit
and the general indebtedness of the population could be another factor to
negatively affect future consumption growth.
The company's Brazilian beer sales volumes have increased by about 24% from
2008 to 2012, while its share of the beer market has increased to 68.5% from
67.5% (slightly lower than the 70.1% in 2010). During this time period, the
company's soft drink sales volumes have increased 22% and its market share has
increased from 17.7% to 18.1%. Ambev also has dominant beer market shares of
40.6% in Canada, 77.7% in Argentina and 90%-100% in Paraguay, Bolivia, and
Uruguay. With the acquisition of 52% of Cerveceria Nacional Dominicana (CND)
in several transactions during 2012, AmBev expanded its presence in the
Dominican Republic where the combined operations of Ambev and CND had
approximately 42.7% market share in the Caribbean during 2012. These leading
market positions are viewed to be sustainable because of the company's strong
brands and extensive distribution systems.
A weakening of AB InBev's credit profile could lead to a negative rating
action on Ambev. Additional acquisitions by either Ambev or AB Inbev that
might result in a material change in the company's capital structure may also
result in a rating downgrade.
Conversely, continued improvements in Brazil's sovereign risk, Ambev's main
market, and the further strengthening of AB InBev's credit profile and ratings
may result in positive rating action.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Parent and Subsidiary Rating Linkage' (Aug. 8, 2012);
--'National Ratings Criteria' (Jan. 19, 2011);
--'Rating Corporates Above the Country Ceiling' (Jan. 25, 2013).
Applicable Criteria and Related Research
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage
National Ratings Criteria
Rating Non-Financial Corporates Above the Country Ceiling
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