Fitch Affirms Ambev's Ratings; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- 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'.

The Rating Outlook is Stable.

KEY RATING DRIVERS

Solid Balance Sheet

Ambev S.A (Ambev)'s ratings reflect the company's 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 in 2014. Since 2010, Ambev has maintained a net cash position. Fitch expects Ambev's revenues to grow in the mid-single digits in 2015 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 61.8% of Ambev's shares and the members of Ambev's board have been appointed by the controlling shareholders, ABI and FAHZ. Ambev represented about 41% of ABI's consolidated EBITDA during 2014. ABI's 'A' rated IDR and Stable Rating Outlook and 'F1' short-term IDR were affirmed in November 2014. Fitch expects ABI's net debt/EBITDA to return to 2.0x in 2015, corresponding to an FFO-based net leverage of approximately 2.8x.

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 70% of group EBITDA. The group benefits from strong market share in Brazil: 68.2% and 18.8% for the beer and soft drink markets respectively. In other regions, Ambev also maintains strong market share. The company's market shares are 42.1% in Canada, 78.1% in Argentina and from 89% to almost 100% in Paraguay, Bolivia and Uruguay. It has a smaller presence in other countries in South America, Central America and the Caribbean.

Strong Operating Performance

Fitch expects Ambev to report strong performance during 2015 despite the subdued economic environment in Brazil thanks to the group's recurring revenues and costs management initiatives. Fitch expects low volumes growth in 2015, after a 4.0% growth during 2014 boosted by the World Cup event. Ambev's EBITDA increased by 4.0% and its EBITDA margin contracted to 48% in 2014 from 50% in 2013.

Consistent Cash Flow Growth

The ratings incorporate Ambev's strong free cash flow generation. Ambev generated about BRL16 billion of cash flow from operation in 2014, a 3.8% year-and-year increase. The group reported negative free cash flow of BRL0.7 billion after payment of capital expenditures of BRL4.5 billion and dividends of BRL12 billion.

Strong Liquidity: Ambev's liquidity remains strong. As of fiscal year end 2014 (FYE14), Ambev had BRL10.4 billion of cash and cash equivalents and BRL2.6 billion of total debt of which BRL1 billion is short term. This results in a net cash position of BRL7.8 billion. The group is exposed to Argentina (about 9% 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 position 2015.

RATING SENSITIVITIES

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 a multi notches upgrade of the Brazilian sovereign and/or significant deleveraging and strong FCF at AB Inbev (excluding Ambev) that would lead to AB Inbev rating to be upgraded.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for the issuer include:

--Single digit revenues growth due to subdued economic environment in Brazil;

--Slight contraction of group EBITDA margin;

--FCF before dividends of at least BRL11 billion;

--The company will maintain a net cash position in 2015.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (May 28, 2014).

Applicable Criteria and Related Research:

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983730

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Fitch Ratings
Primary Analyst
Johnny Da Silva
Director
+1-212-908-0367
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Gisele Paolino
Director
+55 21 4503 2624
or
Committee Chairperson
Joseph Bormann,
Managing Director
+1-312-368-3349
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
[email protected]

Source: Fitch Ratings

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