Primary Credit Analyst:
Samira Sattarzadeh, CFA, London (44) 20-7176-7082; Samira_Sattarzadeh@standardandpoors.com
Secondary Contact:
Gerald T Phelan, CFA, Chicago (1) 312-233-7031; gerald_phelan@standardandpoors.com
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•
Solid market positions: a strong brand portfolio.
•
Strong cash flow generation.
•
Strategic importance for The Coca-Cola Co., which has 23% ownership.
•
Announced voluntary share exchange offer that, if successful, would involve the group moving its domicile from Greece to Switzerland.
Corporate Credit Rating
BBB+/Watch Neg/A-2
•
Exposure to volatile input costs and currencies puts pressure on the group's profit margin.
•
Presence in European countries facing austerity measures, high unemployment, and declining disposable incomes also puts pressure on volumes.
•
Highly competitive nature of the global nonalcoholic ready-to-drink beverage market.
•
Current exposure to a potential change in Greek government policies that could affect the group's business and financial environment.
The ratings on Greece-based Coca-Cola Hellenic Bottling Co. S.A. (CCH) reflect our analysis of CCH's stand-alone credit profile in combination with implied support from The Coca-Cola Co. (Coke; AA-/Stable/A-1+). In our view, this support relies on CCH's strategic importance to Coke, owing to CCH's status as Coke's second-largest bottler by volume and Coke's 23% ownership of CCH. (For further information on our analysis of The Coca-Cola Co. and associated bottlers, see "Credit FAQ: How Standard & Poor's Applies Its Criteria/Methodology To Its Ratings On Coke
And Coke's Bottlers," published Nov. 5, 2010, on RatingsDirect on the Global Credit Portal.)
We assess the group's business risk profile as "satisfactory," incorporating our view of CCH's strong market shares, ability to increase revenues ahead of volumes, and reasonable degree of geographic diversification. The business risk profile is constrained by input cost volatility, weak consumer sentiment in Europe, and the potential impact of Greek government policies on CCH's operations. We assess the group's financial risk profile as "intermediate." At the end of
June 2012, CCH reported adjusted debt to EBITDA of 2.6x and adjusted funds from operations (FFO) to debt of 32%.
We understand that the group's announced plan to change its domicile to Switzerland from Greece, and subsequently list on the London Stock Exchange (LSE), is subject to a 90% shareholder acceptance as part of a voluntary share exchange offer.
We note that CCH derives less than 10% of its earnings from Greece. Our criteria states that the ratings on CCH should not therefore be capped by the Greek sovereign rating. (See "Nonsovereign Ratings That Exceed EMU
Sovereign Ratings: Methodology And Assumptions," published June 14, 2011.)
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We anticipate that volume demand will remain weak for CCH in 2012 and going into 2013 as a result of dampened consumer sentiment amid the current uncertain macroeconomic environment in most of the group's EU markets. In particular, we think that demand will be low in some southern European countries where high levels of unemployment and austerity measures are squeezing consumers' disposable incomes. We believe that some price increases in emerging markets will partially cushion the negative impact of weak demand on the group's revenues. We therefore incorporate low-single-digit revenue growth for 2012 and 2013 into our base-case analysis.
Continued weak consumer sentiment in southern Europe and some input cost volatility are likely, in our view, to also affect CCH's profitability in 2013. In 2012, the group's profitability has continued to face pressure, albeit less severe than in 2011, when its margins were negatively affected to a greater degree than most investment-grade peers.
We view weak consumer demand, commodity price inflation coupled with consumer price sensitivity, and currency volatility as the most significant challenges to the group's future cash flow generation. Under our base-case operating scenario, we project that CCH will report an adjusted FFO-to-debt ratio of 30%-35% and adjusted debt to EBITDA of less than 3x over the next couple of years. In this projection we have included capital expenditure (capex) of between
€450 million and €500 million. This is based on the group's capex guidance of €1.45 billion over the next three years.
As part of the voluntary share exchange, the group may make a cash consideration, which it intends to refinance. We exclude this potential cash consideration from our projections given the uncertainty about the amount and method of refinancing.
The short-term rating on CCH is 'A-2'. This reflects our long-term corporate credit rating on the group, as well as our view of CCH's liquidity as "adequate" under our criteria. We assess that liquidity sources will cover liquidity uses by at least 1.2x over the next 12 months. We estimate that CCH's liquidity sources over the next 12 months comprise:
•
Cash and cash equivalents of €466 million at the end of June 2012;
•
An undrawn €500 million committed credit facility maturing in 2016; and
•
Unadjusted FFO of about €600 million (adjusted FFO of about €650 million).
We estimate that CCH's liquidity uses over the next 12 months comprise:
•
Short-term debt of close to €265 million at the end of June 2012;
•
Capex of between €450 million and €500 million;
•
A $500 million bond maturity in September 2013; and
•
A dividend or capital return to shareholders of between €100 million and €150 million.
If the share exchange offer is successful the following facilities will also be available:
•
A €550 million acquisition facility to be used to fund any cash consideration required as part of a compulsory buyout. This new facility matures in July 2014 or, if earlier, 18 months after the Swiss holding company issues a prospectus relating to admittance of the new shares to the LSE.
•
A €500 million facility to be used if needed to refinance the group's long-term debt. This facility matures on either the date that the acquisition facility matures or in March 2014, whichever is later.
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An additional €500 million revolving loan facility has been cancelled because a change of control provision under the existing RCF will not be triggered following the voluntary share exchange offer.
We note that there are no financial covenants under any of the facilities, including those in place prior to the exchange offer and those put in place as part of the exchange offer.
If the share exchange offer is unsuccessful and the group is unable to refinance its upcoming debt maturities, the
"adequate" liquidity position could come under pressure.
The ongoing CreditWatch primarily reflects the uncertainty surrounding the change of domicile and the LSE listing. If these can be successfully addressed, the future rating direction will depend on CCH's operating performance and support from Coke. If there is insufficient shareholder acceptance, a multi-notch downgrade could still be possible as a result of risks associated with Greece exiting the eurozone and the potential impact of Greek government policies on
CCH's business and financial environment. As the share exchange offer is subject to a shareholder agreement, we view the above risks as applicable to our analysis.
The ratings could also come under pressure if there is a deterioration in the group's operating performance. This could occur if continued weak consumer sentiment in Europe and/or input cost inflation put pressure on the group's volumes and/or margins. In addition, we could lower the ratings if CCH does not maintain an "adequate" liquidity position.
Furthermore, because the ratings on CCH incorporate our assumption of support from Coke, we could lower our ratings on CCH if we see deterioration in Coke's credit quality, a change in the level of implicit support from Coke, or a change in the mix of implicit and extraordinary support from Coke.
We aim to resolve the CreditWatch once we have more information about the success of the share exchange and we have clarity about the amount and method of potential refinancing of any cash consideration. A successful share exchange would likely reduce the downward rating pressure on resolution of the CreditWatch.
If the share exchange is unsuccessful, downward rating pressure would likely be greater; that said, assuming liquidity remains "adequate," we consider it unlikely that the ratings will fall into the speculative-grade category under such a scenario.
With volume sales of about 2.1 billion cases in the 12 months ended Dec. 31, 2011, CCH is Coke's second-largest key bottler, after Coca-Cola Femsa, S.A.B. de C.V. (A-/Stable/--). It serves 28 countries in Europe, Armenia, Russia, and
Nigeria. In the first six months of 2012, 48% of volumes were derived from emerging markets, 33% from established markets, and 19% from developing markets.
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Table 1
Coca-Cola Hellenic Bottling Co. S.A. Geographical Breakdown By Volume, Net Sales, And EBITDA In 2011
Volume (million cases)
2,083.4
Volume (% of total)
100.0
Net sales revenue
(€ mil.)
6,854.3
Net sales revenue
(% of total)
100.0
EBITDA (€ mil.)*
876.7
% EBITDA
100.0
CCH
Established markets§
Developing markets†
Emerging markets‡
699.5
399.7
33.6
19.2
2,807.0
1,161.5
41.0
16.9
349.7
141.1
39.9
16.1
984.2
47.2
2,885.8
42.1
385.9
44.0
*Reflected adjusted EBITDA as reported by CCH. §Established markets--Austria, Greece, Italy, Northern Ireland, Republic of Ireland,
Switzerland, and Cyprus. †Developing markets--Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia.
‡Emerging markets--Armenia, Belarus, Bosnia and Herzegovina, Bulgaria, the former Yugoslav Republic of Macedonia, Moldova, Montenegro,
Nigeria, Romania, Russian Federation, Serbia, and Ukraine. CCH--Coca-Cola Hellenic Bottling Co. S.A.
In particular, our views on CCH's "satisfactory" business risk profile are supported by:
•
CCH's status as a key bottler for Coke, reflecting Coke's 23% ownership stake. We consider CCH to be strongly committed to Coke's strategic goals, as a vehicle for international growth and bottler consolidation. CCH has announced that all its bottling agreements will be extended in full until 2023.
•
CCH's leading positions in a number of national markets. Market leadership and critical mass in terms of volumes provide CCH with economies of scale in production, marketing, and distribution in very fragmented retail environments. Our view of CCH's business is supported by its geographic diversity, which helps it mitigate the effect of economic pressures such as those currently faced in some EU countries or other trading difficulties in any one market. (For the related Standard & Poor's criteria, please see "Nonsovereign Ratings That Exceed EMU Sovereign
Ratings: Methodology And Assumptions," published April 8, 2011.) In the first six months of 2012, CCH gained or maintained market share in sparkling beverages in most of its markets including Italy, Switzerland, and Austria.
•
CCH's role as a platform for Coke's expansion in emerging markets. The share of volume from emerging markets in the first six months of 2012 was approximately 48%, versus 33% from established markets, and the share of reported EBITDA was approximately 55% from emerging markets and 36% from established markets.
•
CCH's scale benefits, adequate manufacturing facilities, and focused offering, which together simplify both manufacturing and marketing. The group also benefits from some scale effects across its markets, especially through its experience of positioning and marketing mainstream brands. In emerging markets, CCH focuses mostly on improving the distribution, advertising, and pricing mix within its mainstream offering.
•
CCH's experienced management team, which has successfully expanded operations and integrated its various businesses over time. Management has a track record of successfully integrating acquisitions and building up profitability through pricing and sales mix improvements.
•
The group's continued focus on improving its operating efficiency. In early 2012, the group opened a shared service center in Bulgaria. This project aims to standardize and centralize certain finance and human resource processes and thereby reduce costs.
These strengths are constrained by the following key challenges:
•
CCH operates in a mature and competitive industry, which means that its ability to maintain stable sales volumes
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Coca-Cola Hellenic Bottling Co. S.A.
and product mix worldwide remains central to its continuing profitable growth. For the rest of 2012 and going into
2013, high unemployment and austerity measures in some European countries could, we believe, put pressure on the group's volumes and margins. We note that in 2011, 15% of CCH's volumes were derived from Italy and 6% from Greece.
•
CCH is exposed to volatile commodity prices, especially those of sugar and resin, as well as to aluminum and oil prices that affect the costs of CCH's packaging and distribution, which could put pressure on the group's margin.
The group partly mitigates these risks through operating efficiency initiatives, international supply chain risk management, and hedging practices where possible.
•
The group is exposed to risks associated with Greece exiting the eurozone and the potential impact of Greek government policies on CCH's business and financial environment.
The main supports for the "intermediate" financial risk profile are:
•
CCH's ability to increase revenues. In the first six month of 2012, reported revenues rose by 1% thanks to CCH using initiatives such as occasion-based brands and packaging (which target different sales channels at different price points), despite falling volumes.
•
The group's cash flow generation ability. We estimate that CCH will generate about €650 million of adjusted FFO in
2012. On June 30, 2012, CCH's ratios of FFO to debt and of debt to EBITDA, adjusted under our definitions, were
32% and 2.6x, respectively.
•
Our projection that CCH's debt leverage is likely to remain less than 3x. This could be endangered if the group were to ramp up spending on acquisitions, which would be a departure from the current financial policy, or increase returns to shareholders. As part of the voluntary share exchange the group may make a cash consideration, which it intends to refinance. We exclude this potential cash consideration from our projections given the uncertainty about the amount and method of refinancing.
•
The group's announced change of domicile to Switzerland from Greece, and its subsequent listing on the LSE. The transaction is subject to a 90% shareholder acceptance as part of a voluntary share exchange offer. We understand that 60.7% of shares have already been irrevocably tendered for exchange. In addition, the group may make a cash consideration as part of the compulsory buyout of minority shareholders, which it intends to refinance. While we view these strategic management changes as positive from a credit perspective, there could be execution risk due to potentially volatile capital markets.
These strengths are moderated by:
•
Our view that the group is likely to continue pursuing bolt-on acquisitions. In the absence of acquisitions, CCH will likely continue to use its cash flows in other ways, such as returns to shareholders and capex.
•
CCH's strategic aspirations, which might include more changes to its geographic footprint through larger-scale mergers and acquisitions. That said, the group has not, so far, expressed an interest in transformational deals.
•
Uncertainty surrounding the potential size and method of refinancing of any cash consideration that the group makes as part of the voluntary share exchange.
•
Volatile currencies in some countries in which CCH operates, which might affect reported profits and the size of euro-denominated free cash flows. The fact that the group's operations have low economic exposure to currency volatility–-they feature quite a close match between the currencies of revenues and of operating costs-–helps to reduce total currency-related risks.
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CCH reports under International Financial Reporting Standards. We adjust CCH's reported debt at year-end 2011 (see table 2) to include the fair value of a cross-currency swap on its U.S. dollar-denominated debt (€131 million). We also reduce CCH's reported debt by the net fair value of the interest rate swaps designated as fair value hedges (€26 million). In addition we adjust debt for pension obligations and operating leases. We net what we view as surplus cash against debt.
All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated.
•
Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
•
Methodology And Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
•
Principles Of Credit Ratings, Feb. 16, 2011
•
2008 Corporate Criteria: Analytical Methodology, April 15, 2008
•
2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008
Table 2
Reconciliation Of Coca-Cola Hellenic Bottling Co. S.A. Reported Amounts With Standard & Poor's Adjusted
Amounts (Mil. €)
--Fiscal year ended Dec. 31, 2011--
Coca-Cola Hellenic Bottling Co. S.A. reported amounts
Debt
Shareholders' equity Revenues EBITDA
2,256.0
2,895.3
6,854.3
870.5
Operating income
468.4
Interest expense
92.8
Cash flow from operations
845.7
Cash flow from operations
845.7
Dividends paid
6.5
Capital expenditures
370.8
Reported
Standard & Poor's adjustments
Operating leases
154.8
115.4
Postretirement benefit obligations
Surplus cash and near cash investments
(443.0)
-Capitalized interest
Share-based compensation expense
Dividends received from equity investments
Non-operating income
(expense)
--
--
--
--
(0.3)
--
--
--
--
--
--
--
--
--
--
--
--
12.2
5.6
--
--
8.1
1.2
--
12.2
5.6
--
--
--
--
11.0
12.2
2.5
--
1.6
--
--
--
46.6
12.0
--
(1.6)
--
--
--
46.6
12.0
--
(1.6)
--
--
--
--
--
--
--
--
--
--
7.5
--
--
(1.6)
--
--
--
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Table 2
Reconciliation Of Coca-Cola Hellenic Bottling Co. S.A. Reported Amounts With Standard & Poor's Adjusted
Amounts (Mil. €) (cont.)
------(99.2) (99.2) -Reclassification of interest, dividend, and tax cash flows
-------(55.9) -Reverse changes in working-capital
Minority interests
Debt - Other
Total adjustments
--
105.1
(67.7)
17.9
--
17.6
--
--
0.0
--
--
27.1
--
--
28.8
--
--
16.3
--
--
(42.2)
--
--
(98.1)
--
--
0.0
Standard & Poor's adjusted amounts
Adjusted
Debt
2,188.3
Equity Revenues EBITDA
2,912.9
6,854.3
897.6
--
--
--
--
5.9
EBIT
497.2
Interest expense
109.1
Cash flow from operations
803.5
Funds from operations
747.6
Dividends paid
6.5
Capital expenditures
376.7
Table 3
Coca-Cola Hellenic Bottling Co. S.A. Peer Comparison
Rating as of Nov. 2,
2012
Coca-Cola Hellenic
Bottling Co. S.A.
BBB+/Watch Neg/A-2
Coca-Cola Enterprises
Inc. fka International CCE
Inc.
BBB+/Stable/A-2
(Mil. €)
Revenues
EBITDA
Net income from continuing operations
Funds from operations (FFO)
Capital expenditures
Free operating cash flow
Discretionary cash flow
Cash and short-term investments
Debt
Equity
Adjusted ratios
EBITDA margin (%)
EBITDA interest coverage (x)
EBIT interest coverage (x)
6,854.3
897.6
268.9
747.6
376.7
426.8
420.3
33.1
2,188.3
2,912.9
13.1
8.2
4.6
965.2
424.1
366.9
125.9
698.8
1,392.8
5,552.6
20.0
12.9
9.6
Coca-Cola
Amatil Ltd.
A-/Stable/A-2
Coca-Cola
Femsa S.A.B. de
C.V.
The Coca-Cola
Co.
A-/Stable/-AA-/Stable/A-1+
--Fiscal year ended Dec. 31, 2011--
6,883.5
1,379.7
585.9
3,819.1
841.9
467.4
532.2
346.2
172.2
(99.2)
309.0
1,925.4
1,596.1
22.0
6.6
5.6
35,850.6
10,763.2
6,602.9
9,302.0
2,406.0
5,437.8
2,125.6
4,253.0
18,874.8
24,588.3
30.0
91.6
78.9
6,115.3
1,103.6
576.9
769.7
386.8
334.3
209.6
526.9
2,591.4
2,233.1
18.0
13.4
10.0
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Table 3
Coca-Cola Hellenic Bottling Co. S.A. Peer Comparison (cont.)
Return on capital (%) 9.2
16.0
FFO/debt (%)
Free operating cash flow/debt (%)
Debt/EBITDA (x)
Total debt/debt plus equity (%)
34.2
19.5
2.4
42.9
69.3
26.3
1.0
20.1
Table 4
Coca-Cola Hellenic Bottling Co. S.A. Financial Summary
--Fiscal year ended Dec. 31--
20.2
27.6
8.9
2.3
54.7
20.8
49.3
28.8
1.8
43.4
(Mil. €)
Rating history
Revenues
EBITDA
Net income from continuing operations
Funds from operations (FFO)
Capital expenditures
Free operating cash flow
Discretionary cash flow
Cash and short-term investments
Debt
Equity
Adjusted ratios
EBITDA margin (%)
EBITDA interest coverage (x)
EBIT interest coverage (x)
Return on capital (%)
FFO/debt (%)
Free operating cash flow/debt (%)
Debt/EBITDA (x)
Debt/debt and equity (%)
2011 2010 2009 2008 2007
A/Stable/A-1 A/Stable/A-1 A/Stable/A-1 A/Negative/A-1 A/Stable/A-1
6,854.3
897.6
268.9
747.6
6,793.6
1,075.1
423.2
924.1
6,543.6
1,040.2
399.2
936.1
6,980.7
1,037.9
227.6
827.1
6,461.9
1,082.0
472.3
902.2
376.7
426.8
420.3
33.1
2,188.3
2,912.9
414.2
574.1
465.1
24.1
2,279.6
3,060.4
469.3
523.6
416.0
47.4
2,666.4
2,555.9
671.3
136.2
33.4
60.0
2,514.0
2,884.5
613.7
186.1
96.7
32.5
2,161.9
3,035.6
13.1
8.2
4.6
9.2
34.2
19.5
2.4
42.9
15.8
10.4
6.5
12.5
40.5
25.2
2.1
42.7
15.9
10.0
6.5
12.4
35.1
19.6
2.6
51.1
14.9
7.3
3.4
9.0
32.9
5.4
2.4
46.6
16.7
9.1
6.2
14.5
41.7
8.6
2.0
41.6
Ratings Detail (As Of November 2, 2012)
Coca-Cola Hellenic Bottling Co. S.A.
Corporate Credit Rating
Senior Unsecured
Corporate Credit Ratings History
07-Jun-2012 Foreign Currency
30-Apr-2012
07-Jul-2010
25-Feb-2010
05-Oct-2009
BBB+/Watch Neg/A-2
BBB/Watch Neg
BBB+/Watch Neg/A-2
A/Negative/A-1
A/Stable/A-1
A/Watch Neg/A-1
A/Stable/A-1
15.1
29.7
12.9
2.3
53.7
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Ratings Detail (As Of November 2, 2012) (cont.)
28-Oct-2008
07-Jun-2012
30-Apr-2012
07-Jul-2010
25-Feb-2010
05-Oct-2009
28-Oct-2008
Local Currency
A/Negative/A-1
BBB+/Watch Neg/A-2
A/Negative/A-1
A/Stable/A-1
A/Watch Neg/A-1
A/Stable/A-1
A/Negative/A-1
Satisfactory
Intermediate
Business Risk Profile
Financial Risk Profile
Debt Maturities
As of Dec. 31, 2011:
Short-term debt: €321.5 mil.
Sept. 2013: $500 mil.
Jan. 2014: €500 mil.
Sept. 2015: $400 mil.
Nov. 2016: €600 mil.
Related Entities
Coca-Cola HBC Finance B.V.
Senior Unsecured
Coca-Cola HBC Finance PLC
Senior Unsecured
BBB/Watch Neg
BBB/Watch Neg
*Unless otherwise noted, all ratings in this report are global scale ratings. Standard & Poor's credit ratings on the global scale are comparable across countries. Standard & Poor's credit ratings on a national scale are relative to obligors or obligations within that specific country.
Additional Contact:
Industrial Ratings Europe; CorporateFinanceEurope@standardandpoors.com
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