Fitch Expect More Latam Beverage Industry Consolidation

MONTERREY, Mexico--(BUSINESS WIRE)-- Fitch Ratings expects that the consolidation of the beverage industry in Latin America will accelerate. The main drivers behind industry consolidation will be the level of profitability attained by combining contiguous territories, distribution networks, production facilities, and knowledge of the local market.

Fitch views most consolidations outcomes as positive, as the sector generates strong free cash flow and most transactions have been funded with a mix of debt and equity. Coca-Cola FEMSA S.A.B. de C.V. (KOF; 'A'/Outlook Stable), Arca Continental, S.A.B. de C.V. (AC; 'A'/Outlook Stable) and Embotelladora Andina S.A. (Andina; 'A-'/Outlook Stable) are among the companies that continue to improve their business positions through the latest round of acquisitions.

Fitch believes that attractive opportunities for consolidation in the region should materialize mainly in South America. To a lesser extent, there could be opportunities in Central America and Mexico, but potential targets are not as relevant in size. The refranchising process of The Coca-Cola Company (KO) in North America, which is currently underway, is expected to continue in the next couple of years. This could represent important opportunities for KOF and AC. These companies are the largest Coca-Cola bottlers in the region and have expressed their interest in expanding into those territories.

The consolidation process could also be accelerated by Anheuser-Busch InBev's acquisition of SABMiller. The former company bottles Pepsi beverages in Latin America while the latter is a key bottler of Coca-Cola products in Africa. The conflict of managing rival brands on a significant scale by the same company will likely trigger a restructuring of distribution agreements and bottling assets.

The recent transactions within the beverage industry highlight the growing need of regional companies to expand into under-penetrated markets to increase profitability. During 2015, AC acquired a 53% controlling stake in Corporacion Lindley (Lindley; 'BBB-'/Outlook Positive) and The Central America Bottling Corporation (CBC; 'BB+'/Outlook Stable) entered in a partnership agreement with Ambev and purchased its Pepsi bottling operations in Peru. Also, in late 2014, Compania Cervecerias Unidas S.A. (CCU; 'AA+(cl)'/Outlook Stable), a Chilean brewer, and Colombian Pepsi bottler Postobon S.A. (Postobon) announced the creation of a joint venture in Cervecera de Colombia S.A.S. which will produce, market, and distribute beer in the Colombian market.

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

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Fitch Ratings
Rogelio Gonzalez
Director
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Fitch Mexico S.A. de C.V.
Prol. Alfonso Reyes 2612
Monterrey, N.L., Mexico
or
Cristina Madero
Associate Director
+1-312-368-2080
or
Johnny Da Silva
Director
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Media Relations:
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Source: Fitch Ratings

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