Fitch Affirms Ambev's Ratings; Outlook Stable
NEW YORK -- April 30, 2014
Fitch Ratings has affirmed the following ratings:
Ambev S.A (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.
--Unsecured notes due 2017 at 'A'.
Fitch has simultaneously affirmed and withdrawn Ambev International Finance Co
Ltd's 'A' IDR.
The Rating Outlook is Stable.
KEY RATING DRIVERS
Solid Balance Sheet: Ambev S.A's (Ambev) ratings reflect the company's
continued commitment to a solid capital structure and its very strong free
cash flow generation. The company's total debt/funds from operations (FFO) and
debt/EBITDA ratios were at about 0.2x during 2013, which is below the 0.4x
they averaged during the last three years. Since 2010, Ambev has maintained a
net cash position. Fitch expects Ambev's revenues to grow in the high
mid-single digits in 2014 and free cash flow after capital expenditures but
before dividends to be at least BRL11 billion. Therefore, Fitch expects
Ambev's total gross leverage to remain below 1x.
Rating Linkage With ABI: Ambev's rating is directly linked to that of
Anheuser-Busch InBev NV/SA (ABI) due to Ambev S.A. strategic importance for
ABI. ABI owns 61.9% of Ambev's shares and nine of the 11 members of Ambev's
board have been appointed by the controlling shareholders, ABI and FAHZ. Ambev
represented about 46% of ABI's consolidated EBITDA during 2013. ABI's IDR of
'A' and its 'F1' short-term IDR were affirmed in January following the
company's announcement that it will acquire Oriental Brewery for USD5.8
billion. Fitch calculated that ABI's FFO net lease adjusted leverage and net
debt to EBITDA (both consolidating Ambev) to return 2.5x and 2.0x or below,
respectively by 2015.
Excellent Business Positions: Ambev's ratings reflect its excellent position
in several markets. Fitch's view is that Ambev's leading market positions are
sustainable because of the company's strong brands and extensive distribution
systems. The group maintains strong market share in countries it operates.
Ambev's operations in Brazil represent about 69% of group EBITDA (58.5% in
beer and 10.6% in CSD). The group benefits from strong market share in Brazil:
67.9% and 18.4% for the beer and soft drink markets respectively. In other
regions, Ambev also maintains strong market share. The company's market shares
are 40.1% in Canada (10% of group EBITDA), 78.5% in Argentina, 42.7% in the
Caribbean and 89%-100% in Paraguay, Bolivia, and Uruguay.
Strong Operating Performance: Fitch expects Ambev to report strong performance
during 2014 thanks to the group's recurring revenues and costs management
initiatives and the FIFA World Cup, which is likely to boost volume growth in
Brazil. Volumes will be further bolstered by favorable weather conditions
vis-a-vis 2013. This growth should occur in spite of projected GDP growth of
only 1.9%. Ambev's EBITDA increased by 11.9% and its EBITDA margin expanded to
50.3% in 2013 from 48.5% in 2012 despite a decline of total volumes of 2.7%.
Consistent Cash Flow Growth: The ratings incorporate Ambev's strong free cash
flow generation. Ambev generated BRL15 billion of cash flow from operation in
2013, a 7% increase from BRL14.2 billion in 2012. The group reported free cash
flow of BRL4.2 billion after payment of capital expenditures of BRL3.8 billion
(BRL 2.8 billion were invested in Brazil) and dividends of BRL7.2 billion.
This does not include dividends and interest on capital (IOC) of approximately
BRL4 billion paid as of Jan. 23, 2014.
Strong Liquidity: Ambev's liquidity remains strong. As of fiscal year end 2013
(FYE13), Ambev had BRL11.5 billion of cash and cash equivalents and BRL2.9
billion of total debt of which BRL1 billion is short term. This results in a
net cash position of BRL8.6 billion. The group is exposed to Argentina (11% of
group's EBITDA) and part of the group's cash in the Argentinean division is
still trapped in the country. Fitch expects Ambev to maintain a net cash
Ambev's rating is closely aligned with that of AB Inbev. Negative free cash
flow at AB Inbev (excluding Ambev) could pressure the ratings of the combined
group and could negatively affect the ratings of Ambev and AB InBev. A more
than one notch downgrade of Brazil's sovereign rating and its country ceiling
would likely lead to a negative rating action for both Ambev's ratings and
those of AB Inbev given the importance of the Brazil market to the company's
consolidated cash flow.
Considerations that could lead to a positive rating action of Ambev are an
upgrade of the Brazilian sovereign and/or significant deleveraging at AB Inbev
(excluding Ambev). During the next couple of years, the probability of an
upgrade is low due to elevated debt associated with AB Inbev's recent
acquisition of Oriental Brewery and an additional 50% stake in Modelo.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 5, 2013);
--'National Ratings Scale Criteria' (Oct. 30, 2013).
Applicable Criteria and Related Research:
Corporate Rating Methodology: Including Short-Term Ratings and Parent and
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