Equity Research ARCA CONTINENTAL , S.A.B. DE C.V. Beverages February 18, 2015
4Q14 Results: Positive report, confirming a quicker absorption of the excise taxes Buy
Change in Recommendation Change in T.P. Change in Estimates Quarterly Review Other
Last Price: P$ 92.60 Figures in millions of pesos AC High Liquidity Price Target 2015: P$ 106.00 13% Return 2013 2014 2015e 2016e
Sales 60,359 61,957 66,839 70,254 ■ In line to expectations, AC presented a solid 4Q14 report that included its EBITDA* 12,418 13,429 14,609 15,514 first YoY increase in volumes (+0.7%), following the application of the Margin 20.6% 21.7% 21.9% 22.1% sugary-drinks taxes that came into effect starting 2014. Growth YoY 14.1% 8.1% 8.8% 6.2% ■ Mostly flat organic results, +1.2% in MX and +3.5% in South America, were Net Profit 5,973 6,510 7,241 7,678 Margin 9.9% 10.5% 10.8% 10.9% boosted by Tonicorp in Ecuador, thus driving consolidated sales up 5.8%. Growth YoY 18.4% 9.0% 11.2% 6.0% ■ EBITDA margin (including non–recurring expenses) was up 30bp entirely reflecting AC’s expense-cutting program that limited expenses to a mere Total Assets 66,349 79,972 87,834 96,125 1.8% YoY increase. EBITDA reached MP 3,311 mn, up 7.7% YoY. Cash 2,566 9,039 11,182 15,026 Total Liabilities 25,165 30,617 31,137 31,431 ■ Net debt was down 7% for the quarter and 41% off YoY, driving net debt to Debt 14,078 15,777 15,755 15,753 EBITDA to 0.5x, from 0.9x a year ago. Again, finances are not a concern. Equity 41,184 49,355 56,696 64,695 ■ In spite of the strong performance, being just in line to expectations we Majority 38,352 46,044 53,385 61,383
have made minimal changes in our estimates and sustain a PT of MP 106.0 Multiples with a BUY recommendation. EV/Sales 2.7x 2.6x 2.4x 2.2x AC presented a solid 4Q14 report that was in line to expectations, including EV/EBITDA 13.2x 11.9x 10.8x 9.9x P/E 25.0x 22.9x 20.6x 19.4x revenues growing 5.8% at MP 16,200 mn and EBITDA rising 7.7% to MP 3,311 mn
(includes non-recurring expenses), while net profit at MP 1,583 mn rose 23.3% as it ROE 15.9% 16.0% 14.4% 13.2% also benefitted from a lower, normalized effective tax rate (30.6% vs 35.5%). ROA 9.3% 9.0% 8.5% 8.3% Net Debt/ EBITDA 0.9x 0.5x 0.3x 0.0x First positive volume for the year! Total beverage volume was up 0.7% fueled by Dividend Yield 3.4% 0.1% 1.1% 1.2% still beverages that rose 0.5% in small formats and 2.4% in jug, which jointly compensated for a -1.1% decline in sparkling beverages; overall, the trend was as Market Data: expected and posted the first positive YoY variation for the year, showing a much Mkt. Cap (mn) USD 10,434 better behavior as compared to initial expectations in light of the sugary drinks Firm Value (mn) USD 11,142 taxes that came into effect starting 2014. Isolating Mexico, total beverage volume 1yr. High—low MP 98.07—MP 67.25 was up 0.8% and sparkling beverages fell a mere -0.1%, confirming the much Float 16% better recovery following the tax situation. AC vs IPC (February 2014 = 100) Related businesses gain ground. AC’s snack operations in North America and Tonicorp (Dairy, consolidated since 2Q14) in Ecuador both recorded solid results 130 and combined represented 10.7% of the company’s revenues. The company still 120 expects improvements based on further synergies for Tonicorp and efficiencies in Wise (snacks), and could even explore new acquisitions if the opportunity arises. 110 Nonetheless, we would expect a wider distribution in both businesses to continue 100 increasing their relevance within AC’s numbers. 90 Investment program to expand in 2015. AC commented a USD 5.2 bn Capex Feb 14 Apr 14 Jun 14 Aug 14 Oct 14 Dec 14 AC* IPC program will be executed in 2015, following a relatively small USD 4.1 bn program in 2014. Beyond the immediate cash-flow consideration, such planning gives a Carlos Hermosillo Bernal clear indication of a more optimistic approach for the year, which joins a 2% to 3% Food, Retail, Beverages volume growth guidance. Having made significant advances in operating [email protected] profitability for 2014, AC expects to at least sustain current margins or achieve +52 (55) 1103 6600 x 4134 modest improvements, all of which comes in line to our current expectations. José Antonio Cebeira González Food, Retail, Beverages INCOME STATEMENT 4Q14 4Q13 Chg. 12M14 12M13 Chg. 4Q14E Real/Est. [email protected] Sales 16,200 15,308 6% 61,957 60,359 3% 15,946 2% +52 (55) 1103 6600 x 1394
EBITDA* 3,311 3,073 8% 13,429 12,449 8% 3,304 0% Actinver EBITDA Margin 20.4% 20.1% 21.7% 20.6% 20.7% Corporate Headquarters Net Profit 1,583 1,284 23% 6,510 5,973 9% 1,653 (4%) Guillermo González Camarena 1200 EPS $ 0.98 $ 0.80 23% $ 4.04 $ 3.71 9% $ 1.03 (4%) 11th Floor, Centro Ciudad Santa Fe
* Includes non recurring expenses of MP 116 mn in 4Q14 and MP 182 mn in 4Q13. México, D.F. 01210 1
AC — Revenue Evolution, Quarterly (MP mn) AC — Quarterly Financials
586
616 565
15,000 4Q13 Var. YoY 3Q14 Var. YoY 4Q14 Var. YoY
3,490
3,343
3,171
4,250 2,959
4,106 Income Statement
Revenues 15,308 5.6% 16,429 3.6% 16,200 5.8%
3,386
3,291
1,355
1,077 1,079
10,000 1,039 Cost of Sales 7,551 0.0% 8,354 1.4% 8,248 9.2%
1,112 1,075
977 Operating Expenses 5,316 9.3% 5,095 5.8% 5,413 1.8% 1,065 Other Income (Expense) (12) -86.5% 57 -226.0% 67 -638.0% 5,000 Operating Profit 2,429 21.8% 3,036 10.4% 2,607 7.3% Margin 15.9% 18.5% 16.1%
EBITDA 3,073 11.6% 3,696 9.2% 3,311 7.7%
9,012 9,014
11,322 10,128 11,355 11,423 10,222 11,299 0 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 Margin 20.1% 22.5% 20.4% Beverages Mexico Others Mexico Beverages SouthAmerica Others SouthAmerica Net Financial Expenses (256) 12.6% (243) 0.8% (240) -6.6%
AC — EBITDA Evolution, Quarterly (MP mn, includes non-recurring items) Financial Income 26 -51.0% 68 28.4% 103 296.6% 4,000 26% Interest Gain 26 -51.0% 63 38.8% 98 276.8%
Financial Expenses 282 0.6% 311 5.8% 342 21.3% 575
622 24% 513 Interest Paid 264 1.9% 311 5.8% 342 29.5%
3,000 599 861
785 22%
Results form JVs (71) -346.6% 21 -68.3% 0 -100.0% 618
2,000 585 20% Profit Before Taxes 2,102 17.1% 2,813 9.3% 2,367 12.6%
Taxes 747 18.6% 910 15.5% 724 -3.0%
3,249 3,116 3,097 18%
2,904 Profit from Continuing Operations 1,356 16.3% 1,903 6.5% 1,643 21.2% 2,566 1,000 2,470
2,036 Minority Participation 71 -16.6% 73 11.2% 59 -16.9% 1,889 16% Net Profit 1,284 18.9% 1,830 6.3% 1,583 23.3% Margin 8.4% 11.1% 9.8% 0 14% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 Mexico SouthAmerica Margin MX Margin SA Margin AC Balance Sheet Total Assets 66,349 1.2% 77,530 12.4% 79,972 20.5% AC — Volume Breakdown (4Q14) Current Assets 8,240 -4.6% 16,693 46.2% 16,417 99.2%
Jug Cash & Equivalents 2,566 -4.1% 9,888 92.9% 9,039 252.3% 12% Receivables 2,241 -7.7% 2,785 15.4% 3,119 39.2% Still Beverages Other Receivables 936 -6.6% 1,190 14.4% 1,138 21.6% 5% Inventories 2,317 -1.2% 2,539 2.3% 2,856 23.2%
Water Long Term Assets 58,109 2.0% 60,837 5.7% 63,555 9.4% 7% Investment in Associated Companies 3,801 16.5% 3,900 21.0% 3,888 2.3% Property, Plant & Equipment 24,171 6.3% 24,827 5.6% 25,321 4.8% Total Liabilities 25,165 2.8% 31,197 20.3% 30,617 21.7% Colas Current Liabilities 8,049 4.9% 11,295 60.1% 10,883 35.2% Flavors 61% 15% Bank Loans (ST) 276 -58.7% 692 17.7% 581 110.1% Debt Securities (ST) 2,100 4952.7% 2,182 5087.6% 1,078 -48.7% Suppliers 2,709 -7.8% 3,120 4.8% 2,997 10.6% Long Term Liabilities 17,116 1.8% 19,902 5.4% 19,734 15.3%
AC — Volume & Average Price Trends (MP, consolidated) Bank Loans (LT) 1,504 33.4% 4,149 196.2% 4,971 230.6% 400 44 Debt Securities (LT) 10,184 6.3% 10,133 -17.2% 9,141 -10.2% Consolidated Equity 41,184 0.2% 46,334 7.7% 49,355 19.8% Controlling Interest 38,352 -0.7% 43,480 7.3% 46,044 20.1% 300 43 Minority Equity 2,831 13.4% 2,853 13.7% 3,311 17.0%
200 42 Cash Flow Statement
360
354 352
349 Profit Before Taxes 2,102 17.1% 2,813 9.3% 2,367 12.6%
335
332 302 294 Pre-Tax Cash Flow 2,969 -0.6% 4,048 12.6% 3,281 10.5% 100 41 Working Capital Changes (1,193) -10.7% (299) 3.3% (634) -46.9% Cash Flow from Operations 1,776 7.6% 3,749 13.4% 2,648 49.1% Cash Flow from Investment (1,319) -61.9% (1,001) -49.7% (1,578) 19.7% 0 40 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 Cash Flow from Financing (2,933) -1735.4% (195) -66.7% (1,992) -32.1% Volume Case Price (RHS) Net Incr. (Decr.) in Cash and T.I. (2,476) 51.7% 2,553 248.9% (923) -62.7% FX Gain (Loss) in Cash and T.I. (84) -418.8% 17 -170.7% 74 -188.0%
Source: Company, Actinver Estimates. EBITDA includes the impact of non-recurring expenses
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Equity, Economic, Quantitative and Fixed Income Research Departments
Equity Research
Gustavo Terán Durazo, Head of EquityResearch (52) 55 1103-6600 x1193 [email protected] CFA Senior Analysts Telecommunications, Media and Martín Lara (52) 55 1103-6600x1840 [email protected] Financials
Carlos Hermosillo Bernal Consumption (52) 55 1103-6600 x4134 [email protected]
Pablo Duarte de León FIBRAs (REITs) (52) 55 1103-6600 x4334 [email protected]
Mining, Metals, Paper and Pablo Abraham Peregrina (52) 55 1103-6600x1395 [email protected] Conglomerates
Ramón Ortiz Reyes Cement, Construction and Concessions (52) 55 1103-6600 x1835 [email protected]
Federico Robinson Bours Energy, Chemicals and Industrial (52) 55 1103-6600 x4127 [email protected] Carrillo Junior Analysts Telecommunications, Media and Juan Ponce (52) 55 1103-6600x1693 jponce@actinver,com.mx Financials Enrique Octavio Camargo Energy, Chemicals and Industrial (52) 55 1103-6600x1836 [email protected] Delgado José Antonio Cebeira Consumption (52) 55 1103-6600x1394 [email protected] González
Mining, Metals, Paper Conglomerates , Mauricio Arellano Sampson (52) 55 1103-6600 x1835 [email protected] Cement, Construction and Concessions Economic and Quantitative Research
Head of Economic and Quantitative Ismael Capistrán Bolio [email protected] Research (52) 55 1103-6600 x6636
Jaime Ascencio Aguirre Economy and Markets [email protected] (52) 55 1103-6600 x1100
Santiago Hernández Morales Quantitative Research [email protected] (52) 55 1103-6600 x4133
Roberto Ramírez Ramírez Quantitative Research (52) 55 1103-6600x1672 [email protected]
Roberto Galván González Technical Research [email protected] (52) 55 1103 -66000 x5039
Fixed Income Research
Araceli Espinosa Elguea Head of Fixed Income Research (52) 55 1103 -66000 x6641 [email protected]
Jesús Viveros Hernández Fixed Income Research (52) 55 1103 -66000 x6649 [email protected]
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Disclaimer
Guide for recommendations on investment in the companies under coverage included or not, in the Mexican Stock Exchange main Price Index (IPC) StrongBuywith an extraordinary perspective. According to the analyst, in the next twelve months, the valuations of stock and/or prospects for the sector are EXTREMELY FAVORABLE Buy. According to the analyst, in the next twelve months, the stock’s valuation and / or prospects for the sector are VERY FAVORABLE Neutral. According to the analyst, in the next twelve months, the valuation of stock and / or sector ARE NEUTRAL OR FAVORABLE but with a similar perspective to the IPC Belowmarket. According to the analyst, in the next twelve months, the valuation of stock and / or sector outlook ARE NOT POSITIVE Sell. According to the analyst, in the next twelve months, the valuation of stock and / or sector outlook ARE NEGATIVE, or likely to worsen In reviewwith positive outlook In review with negative or unfavorable perspective
ImportantStatements. a) Of theAnalysts:
“The analysts in charge of producing the Analysis Reports: Jaime Ascencio Aguirre; Mauricio Arellano Sampson; Enrique Octavio Camargo Delgado; Ismael Capistrán Bolio; José Antonio Cebeira González, Pablo Enrique Duarte de León; Araceli Espinosa Elguea; Roberto Galván González; Ana Cecilia González Rodríguez; Carlos Hermosillo Bernal; Santiago Hernández Morales; Martín Roberto Lara Poo; Ramón Ortiz Reyes; Pablo Abraham Peregrina; Juan Enrique Ponce Luiña; Federico Robinson Bours Carrillo; Gustavo Adolfo Terán Durazo; Jesús Viveros Hernández, declare”:
1. "All points of view about the issuers under coverage correspond exclusively to the responsible analyst and authentically reflect his vision. All recommendations made by analysts are prepared independently of any institution, including the institution where the services are provided or companies belonging to the same financial or business group. The compensation scheme is not based or related, directly or indirectly, with any specific recommendation and the remunerationis only received from the entity which the analysts provide their services. 2. "None of the analysts with coverage of the issuers mentioned in this report holds any office, position or commission at issuers underhis coverage, or any of the people who are part of the Business Group or consortium to which they belong. They have neither held any position during the twelve months prior to the preparation of this report. " 3. "Recommendations on issuers, made by the analyst who covers them, are based on public information and there is no guarantee of their assertiveness regarding the performance that is actually observed in the values object of the recommendation" 4. "Analysts maintain investments subject to their analysis reports on the following issuers: AC, ALFA, ALPEK, ALSEA, AMX,AZTECA, CEMEX, CHDRAUI, FEMSA, FIBRAMQ, FINDEP, FUNO, GENTERA, GFREGIO, GRUMA, ICA, IENOVA, KOF, LAB, LIVEPOL, MEXCHEM, OHLMEX,POCHTEC, TLEVISA,SORIANA, SPORTS, VESTA, WALMEX.
b) On Actinver Casa de Bolsa, S.A. de C.V. Grupo Financiero Actinver
1. Actinver Casa de Bolsa, S.A. de C.V. GrupoFinanciero Actinver, under any circumstance shall ensure the sense of the recommendations contained in the reports of analysis to ensure future business relationship.
2. All Actinver Casa de Bolsa, SA de C.V. GrupoFinanciero Actinver business units can explore and do business with any company mentioned in documents of analysis. All compensation for services given in the past or in the future, received by Actinver Casa de Bolsa, SA de C.V. GrupoFinanciero Actinver by any company mentioned in this report has not had and will not have any effect on the compensation paid to the analysts. However, just like any other employee of Actinver Group and its subsidiaries, the compensation being enjoyed by our analysts will be affected by the profitability gained by Actinver Group and its subsidiaries. 3. At the end of each of the previous three months, Actinver Casa de Bolsa, SA de C.V. Actinver Financial Group, has not held any investments directly or indirectly in securities or financial derivatives, whose underlying are Securities subject of the analysis reports, representing one percent or more of its portfolio of securities, investment portfolio, outstanding of the Securities or the underlying value of the question, except for the following: * AEROMEX, BOLSA A, FINN 13, FSHOP 13, SMARTRC14. 4. Certain directors and officers of Actinver Casa de Bolsa, SA de C.V. GrupoFinanciero Actinver occupy a similar position at the following issuers: AEROMEX, MASECA, AZTECA, ALSEA, FINN, MAXCOM, SPORTS, FSHOP and FUNO. This report will be distributed to all persons who meet the profile to acquire the type of values that is recommended in its content.
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