Fitch Affirms Coca-Cola Amatil Ltd at 'BBB+'; Outlook Stable <Origin Href="QuoteRef">CCL.AX</Origin>

(The following statement was released by the rating agency)SYDNEY, June 08 (Fitch) Fitch Ratings has affirmed Australia-based Coca-Cola Amatil Limited's (CCL) Long-Term Issuer Default Rating (IDR) and senior unsecured rating at 'BBB+' and its short-term IDR at 'F2'. The Outlook is Stable.Fitch expects CCL's credit metrics to improve as it continues to address challenges in its Australian Beverage and Indonesian businesses. The Australian Beverage business is also expected to benefit from the new 20-year distribution agreement with Monster energy drinks, allowing CCL to expand in the fast-growing energy drink category in the mature Australian non-alcoholic beverage segment. We believe that Indonesia remains a key growth market for CCL, despite current economic challenges, underlined by CCL and The Coca-Cola Company's (TCCC) commitment to developing this business.CCL's ratings continue to benefit from a one-notch uplift reflecting CCL's close strategic ties with The Coca-Cola Company (NYSE:KO) (TCCC, A+/Negative).KEY RATING DRIVERSMajor Coca-Cola Bottler: CCL is a major bottler in the Coca-Cola system, and provides access to over 285 million consumers in the Asia-Pacific region to TCCC. CCL has around a 65% market share in Australia's highly concentrated AUD4bn non-alcoholic beverage market. Japan's Asahi Group (with brands such as Pepsi and Schweppes) is its largest competitor, with a market share of around 15%. The rest of the market is mainly private label (supermarket chain) goods. CCL has historically protected its market share at a price premium, however competitive pressure and a structural market shift have pushed CCL's revenue per unit case down since 2014 following several years of growth.Structural Market Shift: Australian consumers are increasingly seeking more choices and healthier options. CCL is focused on addressing this shift by introducing new low-sugar formulations and smaller portion sizes, as well as developing its non-carbonated soft drink (non-CSD) offering. Nevertheless, this shift negatively affected volumes, especially as CCL has underinvested in brand building and marketing in recent years.Turnaround of Australian Beverages: Australian Beverage EBIT (around two-thirds of group EBIT) stabilised in 2015. CCL reported a slight increase in volumes as it reduced pricing, invested in product innovation and increased marketing spend. However, competitive pricing pressure in the grocery channel in CSDs and water continued to contribute to smaller price premiums. A 20-year agreement to distribute Monster energy drinks that started in May 2016 is likely to contribute to the turnaround in the Australian Beverage business. Improved International Results: New Zealand reported 2015 EBIT growth of 6.6%, driven by strong performances in the sparkling beverage and water categories and lower costs. Indonesia's 2015 EBIT rose by 9.9% due to increased volumes and prices and significant productivity gains, despite the depreciation of the rupiah and slower economic growth. Indonesia remains a core growth market, but one that continues to require significant investment. CCL continues to reiterate its commitment to the market, alongside TCCC, with significant investment plans over the next few years. Driver of Supermarket Traffic: Studies conducted by CCL indicate that between 10% and 20% of Australian shoppers were prepared to switch retailers to buy cheaper Coca-Cola - a claim reinforced by the fact that Coca-Cola has been the top product overall in supermarket trolleys for the last 15 years.Sensitivity of Volumes to Weather: The majority of CCL's Australian sales occur in the Australian summer, which coincides with the peak retail months of November to January. Bad weather over this period has been blamed for annualised falls in volume of up to 2%. However, structural changes in the industry have led to recent volume declines in the sale of CSDs.Ratings Incorporate Implied TCCC Support: While the legal linkages between CCL and TCCC (which owns 29% of CCL) are weak, the operational and strategic relationship between the two companies is strong. TCCC's purchase of a 29.4% stake in CCA Indonesia strengthened these ties in 2015. As CCL's main shareholder, TCCC nominates two of CCL's 10 board members. This is reflected in a one-notch uplift to CCI's rating from the company's standalone rating. KEY ASSUMPTIONSFitch's key assumptions within the rating case for CCL include:- Australian dollar-Indonesian rupiah exchange rate of 10,299 in 2016-2019- Capital expenditure of AUD345m in 2016, around AUD300m a year in 2017 and 2018 and around AUD220m in 2019- Dividend payout ratio at the upper end of CCL's target range of 70% to 80% of net incomeRATING SENSITIVITIESNegative: Future developments that may, individually or collectively, lead to negative rating action include:- Fitch perceiving that CCL has become strategically or operationally less significant to TCCC; or- FFO-adjusted net leverage rising above 3.5x (2015: 2.1x) or FFO interest cover declining below 4x (2015: 6.9x), both on a sustained basis.Positive rating action is not envisaged over the rating horizon owing to an inherent lack of diversification stemming from its strategic imperative to remain a major bottler of Coca-Cola in Australasia.FULL LIST OF RATING ACTIONSCoca-Cola Amatil LimitedForeign-Currency Long-Term IDR affirmed at 'BBB+' with Stable OutlookForeign-Currency Short-Term IDR affirmed at 'F2'Senior unsecured debt rating affirmed at 'BBB+'Contact: Primary AnalystKelly Amato, CFAAssociate Director+61 2 8256 0348Fitch Australia Pty LtdLevel 15, 77 King Street, Sydney, NSW, 2000Secondary AnalystDavid CookDirector+61 2 8256 0363Committee ChairpersonVicky MelbourneSenior Director+61 2 8256 0325Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com.Additional information is available on www.fitchratings.comApplicable Criteria Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr _id=1005790Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005790Endorsement Policy https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&det ail=31ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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