Daily Management Review

Coca-Cola Given 'BBB+'; Outlook Stable Rating by Fitch


08/07/2015




Coca-Cola Given 'BBB+'; Outlook Stable Rating by Fitch
With a total debt of $4.5 billion, Coca-Cola Enterprises was rated ‘BBB+’ Issuer Default Rating (IDR) by Fitch Ratings. This rating flows a merger of two sister companies of the group - Coca-Cola Iberian Partners and Coca-Cola Erfrischungsgetranke AG into a new UK domiciled Western European bottler named Coca-Cola European Partners (CCEP).

Flitch also gave a stable rating to one of the largest companies in business.
In a communiqué issued by Flitch it cited an improvement in the sustainability of underlying operations of the company as the driving factor for the rating.

The combination of the two sister companies proved a factor in the ratings. The pro forma 2015 revenue and EBITDA for the company would be of $12.6 billion and $2.1 billion respectively. The combination of the sister companies would be a positive step im the long-term towards improving the sustainability of cash generation for the Coca-Cola System's underlying business operations in Western Europe.

Increased operational scale, synergy opportunities, better leverages of the best practices and improvement of the operational strategy across a total of 13 contiguous countries would be possible after the merger, believes Flitch.

The ability of Coca Cola to invest behind the brands would be increased due to the merger which is expected to improve efficiencies in the company. Coca Cola Company’s strategic alignment within the

Coca-Cola system between the two companies would be enhanced with a 18% share in the new company and the inclusion of two board seats.

The company is facing some headwind in the macro-economic environment which has been affected by reduced consumer spending, higher unemployment and the negative effects of austerity programs in Western Europe. The situation has not changed for quite some time now.

The demand for carbonated soft drinks in developed markets has been affected by issues related to health and wellness trends and this has created a structural challenge for the company.

The developed market accounts for 87% of CCE's, 80% of Coca-Cola Iberian Partners and 86% of the German operations total volume.

The company has been hit by continued tendency of consumers to save instead of spending in the post recession environment as the family shopping trips become smaller and more frequent than a few years ago. This has affected the bottom line of the company

Although brands remain important to consumers and non-alcoholic beverages continue to benefit from the growing premium trend, many consumers remain cash conscious, seeking good value for their spending patterns.

The result of these challenges was that the first half volume of 2015 was flat for the company after adjustment for the impact of a selling day shift and reduction in prices of bottle/can.

Riding on a currency neutral wave, Coca-Cola Enterprises predict a positive growth in net sales and operating income for the entire year.

According to prediction of Fitch, the constraining revenue, operating income and FCF growth would be constrained as the present operating challenges would continue in the near term. The change in domicile from the US to the UK is also expected to reduce the currency volatile for the company.

According to Fitch, the company would acquire improved flexibility to repay debt due to expectation of the substantially greater FCF generation by the Coca Cola Enterprises compared to than CCE on a standalone basis.

Exclusive right to manufacture, sell and distribute Coca-Cola brand beverages in Western Europe, stable cash flows and strong market position is indicative of the Fitch ratings, say experts.

(Source: https://www.businesswire.com)






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