April 5, 2017 / 8:44 PM / 6 months ago

Fitch Upgrades Becle's Ratings to 'BBB+'; Outlook Stable

(The following statement was released by the rating agency) MONTERREY, April 05 (Fitch) Fitch Ratings has upgraded Becle, S.A. de C.V.'s (Becle) Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) to 'BBB+' from 'BBB'. The Rating Outlook is Stable. A full list of ratings is provided at the end of this release. The rating upgrade reflects Becle's improved business and financial profile following the initial public offering (IPO) of 15% its equity for MXN18.6 billion and the merger of its related operating company, Proximo Spirits. Fitch expects the company to use its improved financial flexibility to pursue opportunistic M&A activity that will enhance its geographic and product diversification. Becle's ratings are supported by the strong brand equity of Jose Cuervo tequila, its complementary portfolio of spirits, its vertically integrated operations across the production and distribution of tequila, and its geographical revenue diversification. The company has maintained a conservative capital structure with a low debt levels, sound liquidity and positive free cash flow (FCF) generation across the business cycle. The ratings are constrained by the product concentration in tequila, which represents close to 57% of its total revenues, strong competition within the alcoholic beverage industry, the volatility of prices in its main raw materials (agave), and risks related to changes in U.S. trade policies. KEY RATING DRIVERS Strong Tequila Brand Becle's ratings are supported by the strong brand recognition of its tequila Jose Cuervo, which is positioned as the leading tequila in the world in terms of sales volume. Jose Cuervo and other family brands also have an important geographical diversification with sales in more than 85 countries. The U.S. and Canada are its most important markets, accounting for around 67% of its total revenues, while the Jose Cuervo brand has the leading position in the U.S. tequila category in terms of sales volume. In Mexico, the company is the largest distributor of spirits and liqueurs in terms of volume and the second largest in terms of value, and contributes 21% of Becle's total revenues. Other countries' operations represent 12% of total revenues. Integration of Proximo: Becle merged its operations with Proximo, the main distributor and bottler of its products in the U.S. during the last quarter of 2016. Proximo, a related-party company, began operations in 2008 to distribute Tequila 1800 and after the termination in 2013 of the distribution agreement Becle had with Diageo, the company started to distribute Jose Cuervo's brands in the U.S. and Canada. Since Proximo took on the distribution of Jose Cuervo, the brand recovered its growth in the tequila category during 2014-2016. Fitch views this transaction as positive to Becle's credit profile as it improve its size and scale, strengthens its corporate structure and provides a better view of the company's operating performance. Portfolio Diversification: Fitch expects the company to use the proceeds from its IPO to improve its product portfolio by incorporating new brands in premium categories. In the whiskey category, the company has been working on increasing the market penetration of its Bushmills brand, a premium Irish whiskey that is consumed primarily in the U.S. and Europe. Also, Becle is increasing the presence of its premium rum brand, Kraken, which grew by double digits in the U.S. during 2016. These two categories represents close to 5% and 4%, respectively, of the company's consolidated revenues. Fitch believes Becle's strategy to incorporate premium and scalable brands in its portfolio combined with a strong brand equity in tequila will bring opportunities to strengthen its business position and geographic footprint. Good Operating Performance: Fitch expects Becle to continue improving its operating results through organic revenue growth and relatively stable profitability despite pressures on agave prices. Fitch projects revenue growth of 12% in 2017 supported by a low single-digit volume increase across its regions, higher prices, and the positive FX effect of its U.S.-dollar revenues against the Mexican peso depreciation. While volume in the U.S. could face some pressures due to higher prices and anticipated volume sales in the last quarter of 2016, this should be mitigated by volume growth from Mexico and rest of the world. Fitch also forecasts for 2017 an EBITDA margin of around 25%. Higher costs are expected to be compensated for by internal efficiencies and lower advertisement, marketing and promotion expenses. Low Leverage: Fitch anticipates that Becle's total adjusted debt to EBITDAR will remain at levels at or below 2x in 2017-2018, while the company is expected to maintain its large net cash position until acquisition opportunities materialize. Fitch believes the company has sufficient flexibility to absorb, at the current rating level, an acquisition that would use a combination of cash plus debt resulting in net leverage growing to around 1.5x. Becle's total adjusted debt-to-EBITDAR and net adjusted debt-to-EBITDAR calculated by Fitch were 2.1x and 1.3x, respectively, as of Dec. 31, 2016. Weak FCF in 2017: Fitch expects Becle's to maintain positive FCF in the mid- to long-term. However, for 2017 the company's FCF is projected to be negative assuming capex of MXN2.4 billion and dividends of MXN2.6 billion. Positive FCF should resume in 2018 to around MXN1.1 billion due to higher cash flow generation and lower capex. Higher capex levels in 2017 will be mainly used to expand the production capacity in its tequila and whiskey facilities. In 2016, Becle's FCF calculated by Fitch was around MXN2 billion after covering capex of MXN829 million and no dividends payments. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for Becle include: - Revenue growth of 12% in 2017 and 5% in 2018; - EBITDA margin around 25% in 2016 and improving towards 26% in 2018; - Negative FCF in 2017 due to higher capex and dividends and positive over the mid-term. - Net adjusted leverage below 1.5x, including potential acquisitions. RATING SENSITIVITIES Fitch does not anticipate positive rating actions in the medium term. Further developments that may lead to negative rating actions include: - Sustained deterioration in operating performance leading to lower sales and profitability; - Negative FCF across the business cycle; - Net adjusted leverage above 1.5x on sustained basis. LIQUIDITY Becle's liquidity position is strong with a pro forma cash balance of around MXN21.2 billion including the proceeds from its IPO and a dividend payment in January 2017. In addition, Fitch believes the company has significant financial flexibility, as its next significant debt maturity is in 2025 for MXN10.3 billion (USD500 million) related to its bond. As of Dec. 31, 2016, Becle had a cash position of MXN5.1 billion with only MXN53 million of short-term debt maturities. FULL LIST OF RATING ACTIONS Fitch has upgraded the following ratings - Long-Term Foreign Currency IDR to 'BBB+' from 'BBB'; - Long-Term Local Currency IDR to 'BBB+' from 'BBB'; - USD500 million senior notes due 2025 to 'BBB+' from 'BBB'. The Rating Outlook is Stable Contact: Primary Analyst Rogelio Gonzalez Director +52-81-8399-9100 Fitch Mexico S.A. de C.V. Prol. Alfonso Reyes 2612 Monterrey, N.L., Mexico Secondary Analyst Johnny Da Silva Director +1-212-9080-367 Committee Chairperson Daniel Kastholm, CFA Managing Director +1-312-368-2070 Media Relations: Elizabeth Fogerty, New York, Tel: +1 (212) 908 0526, Email: elizabeth.fogerty@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1021726 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT <a href="https://www.fitchratings.com">WWW.FITCHRATINGS.COM.. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE AT <a href="https://www.fitchratings.com/site/regulatory">HTTPS://WWW. FITCHRATINGS.COM /SITE/REGULATORY. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below