Fitch Maintains Coca-Cola Amatil's 'BBB' Rating on Rating Watch Evolving

(The following statement was released by the rating agency) Fitch Ratings-Sydney-21 March 2021: Fitch Ratings has maintained Australia-based Coca-Cola Amatil Limited's (CCL) Long-Term Issuer Default Rating (IDR) and senior unsecured rating of 'BBB' and Short-Term IDR of 'F2' on Rating Watch Evolving (RWE). The RWE has been maintained because CCL's proposed transaction with Coca-Cola European Partners plc (CCEP; BBB+/Rating Watch Negative) has not been finalised yet. CCL's ratings have been on RWE since 2 November 2020, several days after CCEP announced that it planned to acquire all shares in CCL held by independent shareholders and by Coca-Cola. CCL's ratings continue to benefit from a one-notch uplift from its Standalone Credit Profile (SCP), reflecting CCL's close strategic ties with its parent, The Coca-Cola Company (NYSE:KO) (Coca-Cola, A/Stable). Key Rating Drivers Transaction Pending: CCL's ratings could be upgraded, affirmed or downgraded depending on our assessment of its linkage with CCEP should the proposed transaction go ahead. We will re-assess CCL's credit profile based on our Parent and Subsidiary Linkage Rating Criteria after resolving CCEP's Rating Watch Negative. Implied Support: CCL's ratings benefit from a single-notch uplift from its SCP of 'bbb-' to reflect its close strategic ties with Coca-Cola. We consider legal and operational ties between Coca-Cola, CCL's main shareholder with a 31% share, to be weak. This view also reflects that Coca-Cola nominates only two of CCL's nine board members. Linkage Reassessment with New Shareholder: Fitch will reassess CCL's linkages with CCEP should the transaction proceed, and may upgrade or affirm CCL's ratings if we believe linkages between CCEP and CCL are strong or moderate. However, CCL may lose its one-notch uplift if we conclude that linkages are weak. Operational linkage is unclear at this point. Fitch believes strategic linkage will be strong as CCL will provide CCEP with access to over 285 million Asia-Pacific consumers, including in emerging markets with strong consumption growth prospects, and significant cash generation from Australia. Pandemic Dampens 2020 Performance: CCL's revenue and EBITDA declined by 6% and 9%, respectively, in 2020 due to Covid-19 restrictions in its geographic markets that negatively affected its channel mix and volume. However, the negative impact was partly offset by cost savings of AUD140 million. CCL also reported volume in its Coca-Cola sparkling beverages in Australia increased for the first time since 2014 by 1.9%. This was driven by strong growth in Coca-Cola No Sugar products and management expects no-sugar sparkling beverage to continue to grow strongly in Australia. Gradual Recovery from Covid-19: CCL reported that its trading conditions in January 2021 were stronger than the same period in 2020 and 2019, as social distancing rules were eased in Australia and New Zealand. In addition, the company aims to reduce costs by another AUD80 million over the next two years, with a strong focus on working capital management. Fitch believes improving trading conditions in Australia and New Zealand, and cost reductions will offset volatile trading conditions in Indonesia. ESG - Social and Governance: CCL has an ESG Relevance Score of 4 for Exposure to Social Impacts as it is vulnerable to changes in public-health regulations. However, CCL is addressing this issue by reducing sugar content in its existing beverages and increasing sales from no-sugar sparkling beverages. This factor has a negative impact on the credit profile and it is relevant to the ratings in conjunction with other factors. Derivation Summary CCL's smaller scale and weak market position in Australasia compared with its global peer, CCEP, results in a one-notch lower rating. Coca-Cola Icecek (CCI; BBB-/Stable) operates in the emerging markets, which are vulnerable to volatile demand with lower margin. As a result, CCI is rated one-notch lower than CCL. RATING SENSITIVITIES Fitch will resolve the RWE once it resolves the Rating Watch Negative on CCEP's rating and has sufficient information on linkages between CCEP and CCL. Fitch will affirm the rating on CCL with a Stable Outlook if the transaction does not proceed. Factors that could, individually or collectively, lead to positive rating action/upgrade: Successful completion of the transaction and strong or moderate linkages between CCL and CCEP Factors that could, individually or collectively, lead to negative rating action/downgrade: Successful completion of the transaction and weak linkages between CCL and CCEP; this may result in CCL losing the one-notch uplift from its SCP Best/Worst Case Rating Scenario International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579. Liquidity and Debt Structure Strong Liquidity Profile: CCL's strong liquidity position at end-2020 was underpinned by its Fitch adjusted cash balance of AUD889 million (excluding cash in Papua New Guinea), approximately AUD650 million in committed undrawn facilities and its strong relationships with local and international banks. ESG CONSIDERATIONS CCL has an ESG Relevance Score of 4 for Exposure to Social Impacts because it is vulnerable to changes in public-health regulations. This has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg. REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. Coca-Cola Amatil Limited; Long Term Issuer Default Rating; Rating Watch Maintained; BBB; Rating Watch Evolving ; Short Term Issuer Default Rating; Rating Watch Maintained; F2; Rating Watch Evolving ----senior unsecured; Long Term Rating; Rating Watch Maintained; BBB; Rating Watch Evolving Contacts: Primary Rating Analyst Leo Park, Associate Director +61 2 8256 0323 Fitch Australia Pty Ltd Suite 15.01, Level 15 135 King Street Sydney 2000 Secondary Rating Analyst Kelly Amato, CFA Director +61 2 8256 0348 Committee Chairperson Kah Ling Chan, Senior Director +65 6796 2711 Media Relations: Peter Hoflich, Singapore, Tel: +65 6796 7229, Email: peter.hoflich@thefitchgroup.com Additional information is available on www.fitchratings.com The following issuer(s) did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure: Coca-Cola Amatil Limited Applicable Model Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s). 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