Fitch Ratings has affirmed the Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) of Embotelladora Andina S.A. (Andina) and its international senior unsecured notes at 'BBB+'.

Fitch has also affirmed the company's national scale ratings at 'AA+(cl)'. The Rating Outlook is Stable.

The ratings reflect Andina's resilient operating performance, maintaining strong credit metrics despite challenging economic conditions. The ratings also factor in Andina's solid business position due to the strong brand equity of Coca-Cola.

Key Rating Drivers

Stable Leverage: Fitch projects gross and net leverage to remain steady at around 2.0x and 1.4x in the next two years, based on positive free cash flow and resilient EBITDA generation. FCF generation is expected to be neutral positive in 2023, considering dividend payments of around CLP127 billion per year combined with annual capex of CLP200 billion. More than half of this amount will be of a recurrent nature, while the remainder will be invested in new production capabilities in the region. Fitch expects the company to refinance its USD365 million bond expiring in October 2023 (around USD160 billion after hedging activities), while the next-largest maturity of CLP180 billion (USD 225 million) is in 2039.

High Argentine and Brazilian Exposure: The ratings factor in Andina's significant exposure of EBITDA generation to Argentina (IDR 'C') and Brazil (IDR 'BB-'/Stable), which are non-investment-grade countries. Argentina and Brazil accounted 26% and 24% of the EBITDA in 2022 respectively. Argentina will continue facing a challenging macroeconomic environment due to its high inflation economy, which puts pressure on costs. High inflation levels, capital controls, an upcoming electoral process, generate downside risks to Andina's capacity to pay dividends from that country using the official exchange rate.

Resilient Business Profile: Andina's strong brand portfolio supports revenue visibility and the stability of its cash flow generation. Fitch forecasts low single digit growth in volumes in 2023-2026, despite weak macro conditions in most of the company's operating environments. We expect EBITDA margin to reach 17%to 18% over the next three years, assuming the company transfers higher cost inflation to final prices while improving product mix in Brazil.

Equity Rating: Andina's equity rating is based on its long track record in the Santiago Stock Exchange and its adequate market cap, free float and high liquidity of 'B' shares. The rating is constrained by the moderate liquidity of 'A' shares and lower voting rights of 'B' shares.

Derivation Summary

Andina's net leverage is higher when compared to its peers Arca Continental (Arca; A/Stable) and Coca-Cola FEMSA (KOF; A/Negative), which are at about 0.5x-1.0x. Andina, Arca and KOF benefit from the Coca-Cola brand, which allows them to reach high market share in the countries where they operate. Andina's credit profile is tempered by the weak sovereign ratings of Brazil (BB-/Stable) and Argentina , while KOF and Arca derive more than half of their EBITDA from investment-grade countries. No country ceiling or parent/subsidiary aspects affect the rating.

Key Assumptions

Volume growth in line with GDP growth in the countries the company is present;

EBITDA margin averaging 17.6% during the 2023-2026 period;

Extraordinary dividend announced for 2023 for around USD50 million;

The USD365 million bond due in 2023 will be refinanced;

USD250 million capex in 2023-2024 and USD200 million in 2025-2026;

Short-term investments of around CLP50 bi in 2023-2026.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

Higher Ebitda contribution from investment grade countries;

Gross and Net leverage consistently below 2.0x and 1.5x, respectively;

A robust product diversification towards multiple beverage categories, different consumption patterns, consumer groups and a wide range of pricing points.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

A downgrade of Brazil's sovereign rating would pressure the ratings;

Gross and Net leverage above 3.0x and 2.5x, respectively for a sustained period of time.

Best/Worst Case Rating Scenario

International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

Liquidity and Debt Structure

Ample Liquidity: Andina's liquidity is adequate. The company reported cash of CLP259 billion as of March 2023 and CLP385 billion as of Dec. 31, 2022. Short-term debt amounted to CLP174 billion and total debt reached CLP915 billion as of March 2023. The USD365 million international bond will mature in October 2023; it is currently hedged to Brazilian Real and is expected to be refinanced. The company uses exchange rate hedging agreements to cover obligations from the acquisition of fixed assets, raw material purchases, and/or to cover interest in short- and long-term debts.

Issuer Profile

Andina is the third largest Latin American Coca-Cola bottler by volume and the seventh largest Coca-Cola bottler worldwide. It produces, distributes and markets Coca-Cola soft drinks along with juices and mineral waters in Chile, Argentina, Brazil and Paraguay. It also distributes beer in Chile, Brazil and Argentina and spirits in Chile.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

(C) 2023 Electronic News Publishing, source ENP Newswire