Venezuelan Currency Chaos Costs Coca-Cola Bottler 95% of Revenue

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Venezuela’s deepening economic crisis is costing Mexican bottler Coca-Cola Femsa SAB.

The company said Thursday it reduced the value of its revenue from Venezuela by 95 percent as the nation’s currency collapses and inflation soars. The move turned an increase in second-quarter profit into a decline.

The turmoil in Venezuela has been taking an increasing toll on the world’s biggest franchised Coca-Cola bottler. During the past six months, its $3 billion of bonds underperformed most investment-grade debt out of Mexico.

Venezuela has “an economy with hyperinflation and three different exchange rates, which moreover have depreciated significantly in recent months,” Edgar Ruiz, an analyst at Informa Global Markets, said by telephone from New York. “Depending on which exchange rate you choose, the price at which you sell can vary so much in a short time that it’s hard.”

A year ago, Coca-Cola Femsa was converting its cash into dollars at a rate of 10.6 bolivars to one. Now it’s adopted the so-called Simadi rate, which was 197.3 bolivars per dollar at the close of the second quarter. That’s a 95 percent devaluation.

The change in the currency meant the average price Coca-Cola Femsa charged for a box of 24 eight-ounce drinks fell by 86 percent to the equivalent of 18.75 Mexican pesos ($1.15) in the second quarter from 130.5 pesos a year earlier. The Mexico City-based company charged an average 42.96 pesos elsewhere.

Mexico’s peso dropped 0.2 percent to 16.2924 per dollar on Monday.

Bond Drop

Coca-Cola Femsa’s dollar-denominated notes have dropped 1.5 percent in the past six months, versus an average decline of 0.7 percent for debt from Mexican companies with investment grades. The bottler, whose benchmark bonds due in 2043 yield 4.61 percent, is rated A- by Standard & Poor’s, tied for the highest rating of any Mexican company.

“The conversion effect is an accounting effect caused by the exchange rate,” the company said in an e-mail.

Including Venezuela, the bottler said its revenue sank 12 percent in the second quarter from a year earlier after the company shifted to the new currency rate, which is supposed to be determined by market forces and easier for companies to access than Venezuela’s officially fixed exchange rates. Excluding Venezuela, Coca-Cola Femsa’s sales climbed 4.5 percent.

Hard Currency

The South American country, which is facing a shortage of hard-currency as oil prices plummet, now accounts for 3 percent of Coca-Cola Femsa’s sales, compared with 21 percent in the second quarter of 2014.

“What most of the market has been doing is writing Venezuela down to zero and looking at the numbers without it,” Jose Antonio Cebeira, an analyst at Actinver said by phone from Mexico City. “You can forget Venezuela.”

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