Moody’s Positive on Coca-Cola Femsa

Moody’s has changed the outlook for Coca-Cola Femsa (KOF) to positive from stable, citing the Mexican company’s ample free cash flow generation, solid performance and debt reduction efforts over the past several quarters despite very challenging economic conditions. For 2010, Moody’s expects KOF to maintain free cashflow close to recent levels of around MXP5bn to MXP6bn (when normalized for working capital), which should allow for further de-leveraging. In 2008, Venezuela accounted for 18% of KOF’s revenues and 9% of its operating income. As of September 30, KOF reported gross debt of MXP15.7bn, down MXP2.9bn or 16% from year-end 2008. Net debt was MXP6.7bn, down by nearly half since year-end 2008. Moody’s adds that devaluation of the official Venezuelan exchange rate to 4.30 from 2.15 VEF/USD will not materially affect KOF’s credit metrics given Venezuela’s limited contribution to cash generation. Moody’s expects that KOF will continue to grow earnings and generate ample free cashflow in 2010 despite a still-challenged consumer, allowing it to further reduce debt and improve credit metrics.